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An Empirical Test of the Optimal Disclosure Hypothesis

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  • Jankensgård, Håkan

    ()

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.

Suggested Citation

  • Jankensgård, Håkan, 2013. "An Empirical Test of the Optimal Disclosure Hypothesis," Knut Wicksell Working Paper Series 2013/6, Lund University, Knut Wicksell Centre for Financial Studies.
  • Handle: RePEc:hhs:luwick:2013_006
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    File URL: http://www.lusem.lu.se/media/kwc/working-papers/kwc-wp-2013-6.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

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

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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