Does Information Risk Really Matter? An Analysis of the Determinants and Economic Consequences of Financial Reporting Quality

Abstract

I investigate the determinants and economic consequences associated with financial reporting quality. I find evidence of a positive association between investors' demands for firm-specific information and financial reporting quality. In addition, the evidence suggests that higher proprietary costs (proxied by capital intensity, product market competition, and growth opportunities) are associated with a lower quality of financial information. Controlling for the firm-specific characteristics determining financial reporting quality, I find evidence of a negative association between firms' total risk and financial reporting quality. Decomposing total risk into a systematic component and an idiosyncratic one, the results imply that firms providing financial information of higher quality do not necessarily enjoy a lower cost of equity capital. However, a significant negative relation is documented between reporting quality and idiosyncratic risk. This suggests that the quality of accounting information cannot be characterized as an additional systematic priced risk factor, but rather as an idiosyncratic one, once the firmspecific characteristics determining information quality are controlled for. These results demonstrate the importance of explicitly controlling for the determinants of financial reporting quality when investigating the associated economic consequences and question recent empirical evidence on the association between reporting quality and the cost of equity capital.

Kualitas Pelaporan Keuangan: Berbagai Faktor Penentu Dan Konsekuensi Ekonomis

“…Sebaliknya, perusahaan yang mengalami kerugian akan menghadapi kesulitan. Menurut Cohen (2006) kerugian adalah indikasi kejutan negatif serius dalam lingkungan operasi perusahaan. Akrual yang dibuat sebagai respon untuk kejutan tersebut cenderung melibatkan kesalahan estimasi substansial, yaitu ongkos restrukturisasi.…”

“…Penelitian kualitas pelaporan keuangan dapat dilakukan dengan dua pendekatan (Gu et al 2002;Francis et al 2004Francis et al ,2005Pagalung 2006;Cohen 2003Cohen , 2006Chaney et al 2006). Pendekatan pertama berkaitan dengan kajian faktorfaktor penentu yang menghasilkan pelaporan keuangan yang berkualitas.…”

“…Fokus pendekatan ini berkaitan dengan faktor-faktor internal perusahaan yang terkait dengan faktor inheren atau faktor intrinsik yang melekat di perusahaan itu sendiri, yang di berbagai penelitian disebut sebagai faktor spesifik atau karakteristik perusahaan. Faktor-faktor tersebut adalah faktor-faktor innate dinamis [siklus operasi, volatilitas penjualan], statis [ukuran perusahaan, umur (Gu et al 2002;Dechow dan Dichev 2002;Cohen 2003Cohen , 2006Francis et al 2004Francis et al , 2005Pagalung 2006).…”

“…Salah satu pemakai utama laporan keuangan adalah investor yang baginya ketersediaan informasi yang ditawarkan diharapkan dapat mengurangi asimetrik informasi (Barone 2002;Barth dan Landsman 2003;Bhattacharya et al 2003;Cohen 2003Cohen , 2006Aboody et al 2003;Francis et al 2004Francis et al , 2005Pagalung 2006).…”

A theory of voluntary disclosure and cost of capital

“…Although the evidence is still relatively recent, a majority of empirical studies document a negative association between disclosure and cost of capital cross-sectionally. When disclosure itself is a choice, the interpretation of empirical results must take into account the issue of endogeneity (Skaife, Collins, and LaFond (2004), Nikolaev and Van Lent (2005), and Cohen (2008)). To capture the endogenous disclosure decision, this paper provides a model in which firms choose their disclosure to maximize their market value.…”