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Segment Disclosure and Cost of Capital
Author(s) -
Blanco Belen,
Garcia Lara Juan M.,
Tribo Josep A.
Publication year - 2015
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/jbfa.12106
Subject(s) - cost of capital , cost of equity , weighted average cost of capital , business , implicit cost , ex ante , capital asset pricing model , equity (law) , return on capital , capital (architecture) , capital cost , capital adequacy ratio , economics , economic capital , monetary economics , microeconomics , finance , financial capital , total cost , capital formation , individual capital , profit (economics) , history , archaeology , political science , law , macroeconomics
We investigate whether segment disclosure influences cost of capital. Improved segment reporting is expected to decrease cost of capital by reducing estimation risk. However, in a competitive environment segment disclosure may also generate uncertainties about future prospects and lead to a larger cost of capital. Asset‐pricing tests confirm that segment disclosure is a priced risk factor. Also, segment disclosure reduces ex‐ante estimates of cost of equity capital and other measures connected to risk. These results suggest a negative relation between segment disclosure and cost of capital. Our results also show that competition reduces, but does not eliminate, the previous relationship.