Open AccessReputation-Based Disclosure and Cost of Capital: The Role of Controlling Ownership
Author(s) -
Evi Gantyowati,
Abdul Rohman,
Tarmizi Achmad,
Doddy Setiawan
Publication year - 2022
Publication title -
international journal of business and society
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.236
H-Index - 15
ISSN - 1511-6670
DOI - 10.33736/ijbs.4619.2022
Subject(s) - cost of capital , reputation , business , proxy (statistics) , voluntary disclosure , sample (material) , monetary economics , stock exchange , earnings , accounting , capital market , economics , microeconomics , finance , incentive , social science , chemistry , chromatography , machine learning , sociology , computer science
This study aims at examining the effect of reputation-based disclosure on the cost of capital and the role of the controlling ownership as a moderating variable. The sample of the study consists of manufacturing firms listed on the Indonesia Stock Exchange (IDX) for the years 2009–2013. This study uses price-earnings to growth (PEG) as a proxy of the cost of capital. The result demonstrates that reputation-based voluntary disclosure has a negative effect on the cost of capital. The controlling ownership further strengthened this effect. The cost of capital is reduced by higher disclosure. However, the interaction between reputation-based disclosure and ownership structure has a positive effect on the cost of capital. The result of this study is robust, using other measurements of the cost of capital (Fama-French model). It implies that investors can utilize firms’ disclosure as a signal to estimate returns. Firms, however, strive to impress investors positively to reduce the expected returns.