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Segment Disclosure and Cost of Capital

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  • Belen Blanco
  • Juan M. Garcia Lara
  • Josep A. Tribo

Abstract

We investigate whether segment disclosure influences cost of capital. Improved segment reporting is expected to decrease cost of capital by reducing estimation risk. However, in a competitive environment segment disclosure may also generate uncertainties about future prospects and lead to a larger cost of capital. Asset-pricing tests confirm that segment disclosure is a priced risk factor. Also, segment disclosure reduces ex-ante estimates of cost of equity capital and other measures connected to risk. These results suggest a negative relation between segment disclosure and cost of capital. Our results also show that competition reduces, but does not eliminate, the previous relationship.

Suggested Citation

  • Belen Blanco & Juan M. Garcia Lara & Josep A. Tribo, 2015. "Segment Disclosure and Cost of Capital," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 42(3-4), pages 367-411, April.
    • Handle: RePEc:bla:jbfnac:v:42:y:2015:i:3-4:p:367-411
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