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An Empirical Test of the Optimal Disclosure Hypothesis

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  • Jankensgård, Håkan

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    Abstract

    According to the cost-of-capital hypothesis, increased voluntary disclosure should reduce information asymmetries, lower the cost of capital, and increase firm value. The optimal-disclosure hypothesis, however, predicts that costs related to voluntary disclosure lead to the existence of an interior optimum of disclosure that maximizes firm value. These hypotheses are tested using disclosure indexes based on analysts’ ratings of firms’ financial reports for a sample of 181 Swedish firms. For annual reports, the data supports the optimal disclosure hypothesis, whereas for quarterly reports the findings suggest the existence of a “disclosure premium” in accordance with the cost of capital hypothesis.

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    Bibliographic Info

    Paper provided by Knut Wicksell Centre for Financial Studies, Lund University in its series Knut Wicksell Working Paper Series with number 2013/6.

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    Length: 44 pages
    Date of creation: 24 Feb 2013
    Date of revision:
    Handle: RePEc:hhs:luwick:2013_006

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    Postal: Knut Wicksell Centre for Financial Studies, Lund University School of Economics and Management, P.O. Box 7080, S-220 07 Lund, Sweden
    Phone: +46 46-222 32 61
    Fax: +46 46-222 34 06
    Web page: http://www.lusem.lu.se/kwc
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    Related research

    Keywords: Voluntary disclosure; cost of capital; Tobins q; optimal disclosure;

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