Disclosure quality, diversification and the cost of capital

Clinch, Greg

doi:10.1177/0312896213510700

Cited by 17 publications

(6 citation statements)

References 24 publications

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“…There is a well-established theoretical literature which underlies the various empirical studies. Recent examples of this literature include Clinch and Lombardi (2011) who extend analysis into the relation between cost of equity capital and the proportion of investors with private information, Clinch (2013) which extends analysis into how diversification influences the link between disclosure quality and cost of equity capital, and Clinch and Verrecchia (2014) who investigate the association between voluntary disclosure and the risk-related discount investors apply to price.…”

Section: Relevance To Practicementioning

confidence: 99%

“…Finally, a recent special issue of the AJM highlights work by noted Australian researchers situated both at Australian universities and abroad. Here, both Terry Shevlin and Greg Clinch focus on the economic consequences of financial reporting quality, with Shevlin (2013) presenting a review of, and reflection on, the empirical literature investigating the association between financial reporting quality and the cost of equity capital and Clinch (2013) analytically examining the links between disclosure quality, diversification, and cost of capital. In co-authored work, Stephen Taylor examines whether IFRS adoption has had an impact of accruals quality (Lai et al, 2013), Doug Skinner focuses on accounting standards by undertaking a review of the empirical literature into the politics of standard setting (Gipper et al, 2013), Patricia Dechow presents a review of the literature into the merits of financial ratio models in identifying and understanding the implications of corporate events (Ak et al, 2013), and lastly, Richard Sloan proposes and validates an approach based on fundamentals for evaluating investing strategies (Chee et al, 2013).…”

Section: Noted Authorsmentioning

confidence: 99%

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A review of accounting research in the Asia Pacific region

Benson

Clarkson

Smith

et al. 2015

Australian Journal of Management

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In this paper, we review scholarly accounting research published within the Asia Pacific Region by analysing nine of the main accounting journals within the region along five dimensions. The nine journals we focus on are: Accounting, Auditing and Accountability Journal; Australian Accounting Review; Abacus; Accounting and Finance; Australian Journal of Management; Accounting Research Journal; Journal of Contemporary Accounting and Economics; Managerial Auditing Journal; and Pacific Accounting Review. The five dimensions we consider are: the most frequently cited papers; topical coverage; impact on practice; research method; and noted authors. Our review leads us to conclude that the accounting journals published within the Asia Pacific region make a significant contribution to research and practice both within the region and internationally.

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Section: Relevance To Practicementioning

confidence: 99%

Section: Noted Authorsmentioning

confidence: 99%

A review of accounting research in the Asia Pacific region

Benson

Clarkson

Smith

et al. 2015

Australian Journal of Management

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“…In a large multi-asset economy this effect would not diversify away as long as investors were unable to fully infer a firm's information from the disclosures of other firms, and cash flows were correlated across firms. See, for example, the discussions in Lambert et al (2007) and Clinch (2013) relating to exogenous disclosure settings. 6.…”

Section: Discussionmentioning

confidence: 99%

Voluntary disclosure and the cost of capital

Clinch

Verrecchia

2014

Australian Journal of Management

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We investigate the association between voluntary disclosure and the risk-related discount investors apply to price. First, we study the association between (endogenous) disclosure choice and the discount in price induced by changes in the underlying model parameters: this informs empirical research that ignores endogeneity of disclosure by, for example, omitting the exogenous determinants of disclosure and the discount in price from the regressions employed. Second, we investigate the incremental effect of disclosure on the discount in price: this informs empirical research that controls for the direct effect of exogenous factors on the discount in price by, for example, including the exogenous variables in regression models employed. Finally, we examine the incremental effect of disclosure on the discount in price when changes in disclosure are not induced by changes in underlying exogenous parameters: this further informs empirical research that controls for the effect of exogenous factors on both the discount in price and disclosure, and focuses on the association between 'unexplained disclosure' and the discount. AbstractWe investigate the association between voluntary disclosure and the risk-related discount investors apply to price. Prior research indicates that when the analysis is based on a commitment to disclose the association is negative (i.e., more disclosure is associated with a lower discount). Our results suggest that with voluntary, or endogenous, disclosure the association is not necessarily negative, and in most cases the association is positive. This implies that in studies of either the discount or cost of capital, some care should be taken to distinguish endogenous disclosure choice (i.e., voluntary disclosure) from disclosure commitment.JEL classification: G12, G14, G31, M41

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“…Analogously, the return expected to accrue in each sub‐period depends on how much uncertainty will be resolved at each reporting date before time T (cf. Clinch, ). Returns are thus expected (not guaranteed) to arise at a rate determined by the rate of uncertainty resolution.…”

Section: Introductionmentioning

confidence: 99%

“…In terms of a distinction between fundamental risk and price risk (cf. Gao, and Clinch, ), fixed

f^{*} (V_{1}, V_{2}, ..., V_{n})

equates to fixed fundamental risk. (v)The subjective distribution

f (V_{1}, V_{2}, ..., V_{n} | \cdot, φ)

is built on the total of all available information. This allows for information that is explicit (e.g.…”

Section: Introductionmentioning

confidence: 99%

Information and the Cost of Capital in a Mean‐Variance Efficient Market

Johnstone

2015

Business Fin & Account

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Before information ϕ arrives, market observers must be uncertain whether the stock price conditioned on ϕ will be higher or lower than the current price. Otherwise there is an obvious arbitrage opportunity. By assuming this minimal condition of efficient markets, it is shown under the mean‐variance CAPM that information that leaves the future value of a firm more certain, in the sense that its perceived covariance with the market is reduced towards zero, can lead to a higher expected return on that asset. A further result is that it is theoretically possible that the required return on the stock will necessarily fall after observing signal ϕ, or (in other circumstances) that it will necessarily rise. In general, information that allows better discrimination between firms leads some firms to have higher costs of capital and other firms to have lower costs of capital. Less obviously, better discrimination between firms can induce a higher average cost of capital across the market.

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Disclosure quality, diversification and the cost of capital

Cited by 17 publications

References 24 publications

A review of accounting research in the Asia Pacific region

A review of accounting research in the Asia Pacific region

Voluntary disclosure and the cost of capital

Information and the Cost of Capital in a Mean‐Variance Efficient Market

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