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The Complementarity Between Segment Disclosure and Earnings Quality, and its Effect on Cost of Capital

Author

Listed:
  • Belén Blanco

    (Universidad Carlos III Madrid)

  • Juan M. García

    (Universidad Carlos III Madrid)

  • Josep A. Tribó

    (Universidad Carlos III Madrid)

Abstract

We investigate the role of earnings quality in determining the levels of segment disclosure, and whether and how better quality earnings and segment disclosure influences cost of capital. Using a large US sample for the period 2001-2006, we find a positive relation between earnings quality and levels of segment disclosures. We also find that firms providing better quality segment information, contingent upon good earnings quality, enjoy lower cost of capital. We base our empirical tests on a self created index of segment disclosure. Our results contribute to a better understanding of (1) the incentives for providing segment disclosures, and (2) how accounting quality (quality of segment information and earnings quality) is related to the cost of capital.

Suggested Citation

  • Belén Blanco & Juan M. García & Josep A. Tribó, "undated". "The Complementarity Between Segment Disclosure and Earnings Quality, and its Effect on Cost of Capital," Working Papers 201005, Departament Empresa, Universitat Autònoma de Barcelona.
    • Handle: RePEc:bbe:wpaper:201005
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    File URL: http://webs2002.uab.es/dep-economia-empresa/documents/10-5.pdf
    File Function: First version, 2010
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