Equilibrium pricing and portfolio composition in the presence of uncertain parameters

Coles, Jeffrey L.; Loewenstein, Uri

doi:10.1016/0304-405x(88)90072-4

Cited by 164 publications

(100 citation statements)

References 24 publications

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“…They suggested that due to this unobservable estimation risk, firms with poor disclosure quality have higher average rates of return per unit of estimated beta than large companies with higher level of voluntary reporting. Coles & Loewenstein (1988) further analyzed estimation risk in an equilibrium framework under uncertainty about assets' payoff distribution.…”

Section: Theoretical Literaturementioning

confidence: 99%

“…In general, two literature streams support the negative relationship of increased disclosures to cost of equity financing. One is based on the improved stock market liquidity (Demsetz, 1968;Copeland & Galai, 1983;Glosten & Milgrom, 1985;Amihud & Mendelson, 1986;Diamond & Verrecchia, 1991); the other relies on the reduced non-diversifiable estimation risk (Botosan, 2006;Barry & Brown, 1985;Coles & Loewenstein, 1988;Handa & Linn 1993) The former stream argues that if companies disclose more corporate information, they would also attract more long-term investors. This in turn will positively influence the market price and the marketability of the firm's stock, thus reducing company's cost of equity financing.…”

Section: Introductionmentioning

confidence: 99%

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Relationship between Cost of Equity Capital and Voluntary Corporate Disclosures

Petrova¹,

Γεωργακόπουλος²,

Sotiropoulos³

et al. 2012

IJEF

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Relationship between cost of equity capital and voluntary corporate disclosuresPetrova, E.; Georgakopoulos, G.; Sotiropoulos, I.; Vasileiou, K.Z. Published in:International Journal of Economics and Finance DOI:10.5539/ijef.v4n3p83 Link to publication Citation for published version (APA):Petrova, E., Georgakopoulos, G., Sotiropoulos, I., & Vasileiou, K. Z. (2012). Relationship between cost of equity capital and voluntary corporate disclosures. International Journal of Economics and Finance, 4(3), 83-96. DOI: 10.5539/ijef.v4n3p83 General rightsIt is not permitted to download or to forward/distribute the text or part of it without the consent of the author(s) and/or copyright holder(s), other than for strictly personal, individual use, unless the work is under an open content license (like Creative Commons). Disclaimer/Complaints regulationsIf you believe that digital publication of certain material infringes any of your rights or (privacy) interests, please let the Library know, stating your reasons. In case of a legitimate complaint, the Library will make the material inaccessible and/or remove it from the website. Please Ask the Library: http://uba.uva.nl/en/contact, or a letter to: Library of the University of Amsterdam, Secretariat, Singel 425, 1012 WP Amsterdam, The Netherlands. You will be contacted as soon as possible. AbstractThe relationship between disclosure and cost of equity capital has always been interesting not only for managers, but for investors as well. Economic theory suggests that by increasing the level of corporate reporting firms not only increase their stock market liquidity, but they also decrease the investors' estimation risk, arising from uncertainty about future returns and payout distributions. Utilizing the Residual Income Valuation Model, the implied cost of capital is estimated for a sample of 121 Swiss listed, non-financial companies adopting a finite horizon version of the residual income valuation model. The results show that firms on the Swiss market can reduce their cost of equity capital by increasing the level of their voluntary corporate disclosures. The results persist even after controlling for various firm specific risks, such as firm size or financial leverage and regardless of company's reporting strategy (conservative or aggressive).

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Section: Theoretical Literaturementioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Relationship between Cost of Equity Capital and Voluntary Corporate Disclosures

Petrova¹,

Γεωργακόπουλος²,

Sotiropoulos³

et al. 2012

IJEF

View full text Add to dashboard Cite

show abstract

“…Since there is greater uncertainty regarding 'true' parameters when information provided is low, investors require compensation for this additional risk (Barry and Brown 1985;Coles and Loewenstein 1988;Coles et al 1995or Clarkson et al 1996. If strategy disclosure is informative to investors with respect to an asset's payoff function, increased levels of strategy disclosure for a given firm should then be associated with lower cost of equity capital.…”

Section: Hypothesis Developmentmentioning

confidence: 99%

Let’s talk strategy: the impact of voluntary strategy disclosure on the cost of equity capital

Sieber

Weißenberger

Oberdörster

et al. 2014

Bus Res

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This paper deals with the impact of voluntary strategy disclosure in management reports on the cost of equity capital. Such an impact is not obvious, as investors might consider strategy information as “cheap talk” and therefore ignore it. We analyze a sample of 100 German listed firms from 2002 to 2008, measuring strategy disclosure levels using hand-collected strategy disclosure scores. We find that higher disclosure levels are, on average, associated with lower cost of equity capital even after controlling for overall disclosure quality. The paper contributes to the field by providing evidence that voluntary strategy disclosures in firms’ management reports reduce the information asymmetry component of cost of capital and therefore can be considered as a relevant source of information for investors.

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“…That's why the corporate disclosed information should be an important source for bond credit rating. Barry, Brown (1985) [2], Coles and Loewenstein (1988) [3], and Clarkson et al (1996) [4] find that high information disclosure quality can reduce the chance of mistake when investors estimating corporate credit risk. Heflin et al (2011) [5] did an empirical research with the U.S. bond market data to test the relationship between information disclosure quality and credit rating, they found that the higher quality of information disclosed in the annual report, the higher credit rating.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Wiedman (2000) [9] studied the relationship between voluntary disclosures and issuing stock and found voluntary disclosure can reduce information asymmetry between investors and companies. Barry and Brown (1985) [2], Coles and Loewenstein (1988) [3] and Clarkson et al (1996) [4] found high information disclosure quality can reduce mistake when investors estimating credit risk. Heflin et al (2011) [5] found the higher information quality corporate disclose, the higher credit rating it will get.…”

Section: Hypothesismentioning

confidence: 99%

Are Participants in Bond Market Concerned about the Quality of Information Disclosure: Evidence from Chinese Listed Companies

Luo¹,

Yu²,

Su³

2014

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High quality of information disclosure can reduce the information asymmetry, which is very important to the effective operation of the capital market. This article studies whether participants in bond market are concerned about the quality of information disclosure based on a sample of listed companies in China's bond market from 2007 to 2013. We find that there is no significant relationship between information disclosure quality and credit rating, indicating the credit rating agencies are not concerned about information disclosure quality. However, we find information disclosure quality can significantly reduce the bond financing cost, which indicates that bond investors are concerned about information disclosure quality.

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Equilibrium pricing and portfolio composition in the presence of uncertain parameters

Cited by 164 publications

References 24 publications

Relationship between Cost of Equity Capital and Voluntary Corporate Disclosures

Relationship between Cost of Equity Capital and Voluntary Corporate Disclosures

Let’s talk strategy: the impact of voluntary strategy disclosure on the cost of equity capital

Are Participants in Bond Market Concerned about the Quality of Information Disclosure: Evidence from Chinese Listed Companies

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