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Does graph disclosure bias reduce the cost of equity?

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  • Muiño Vázquez, Flora
  • Trombetta, Marco

Abstract

Research on disclosure and capital markets focuses primarily on the amount of information provided but pays little attention to the presentation format of this information. This paper examines the impact of graph utilization and graph quality (distortion) on the cost of equity capital, controlling for the interaction between disclosure and graph distortion. Despite the advantages of graphs in communicating information, our results show that graph utilization does not have a significant impact on users’ decisions. However we observe a significant (negative) association between graph distortion and the exante cost of equity. This effect though, disappears if we use realised returns as a measure of expost cost of equity. Moreover, we find that disclosure and graph distortion interact so that the impact of disclosure on the cost of capital depends on graph integrity. For low level of overall disclosure, graph distortion reduces the exante cost of equity. However for high level of disclosure graph distortion increases the exante cost of equity.

Suggested Citation

  • Muiño Vázquez, Flora & Trombetta, Marco, 2007. "Does graph disclosure bias reduce the cost of equity?," DEE - Working Papers. Business Economics. WB wb073007, Universidad Carlos III de Madrid. Departamento de Economía de la Empresa.
  • Handle: RePEc:cte:wbrepe:wb073007
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    1. Robinson, P.M. & Vidal Sanz, J., 2006. "Modified Whittle estimation of multilateral models on a lattice," Journal of Multivariate Analysis, Elsevier, vol. 97(5), pages 1090-1120, May.
    2. Jose Vidal-Sanz, 2009. "Automatic spectral density estimation for random fields on a lattice via bootstrap," TEST: An Official Journal of the Spanish Society of Statistics and Operations Research, Springer;Sociedad de Estadística e Investigación Operativa, pages 96-114.
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    Disclosure;

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