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Disclosure and the Cost of Capital: A Survey of the Theoretical Literature
Author(s) -
Bertomeu Jeremy,
Cheynel Edwige
Publication year - 2016
Publication title -
abacus
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.632
H-Index - 45
eISSN - 1467-6281
pISSN - 0001-3072
DOI - 10.1111/abac.12076
Subject(s) - cost of capital , agency cost , economics , voluntary disclosure , capital (architecture) , earnings , ex ante , marginal cost of capital schedule , asset (computer security) , implicit cost , weighted average cost of capital , business , economic capital , microeconomics , financial capital , finance , capital formation , total cost , individual capital , macroeconomics , profit (economics) , history , archaeology , corporate governance , computer security , computer science , shareholder
This article offers a survey of theoretical research on disclosure and the cost of capital. We summarize the current state of the literature and discuss the channels through which information affects the cost of capital. After giving an overview of asset pricing theory, we examine the rationale for an accounting risk factor or an ex‐ante effect of information on the cost of capital. Then, we discuss the role of voluntary disclosure, heterogenous beliefs, investor base, liquidity shocks, earnings management, and agency problems as determinants of the cost of capital. Linkages between productive decisions and the cost of capital, and their implication for investor welfare, are also examined.