Global Evidence on Incentives for Voluntary Accounting Disclosures and the Effect on Cost of Capital

University of Missouri at Columbia, College of Business Working Paper

38 Pages Posted: 10 Nov 2003

See all articles by Jere R. Francis

Jere R. Francis

Maastricht University

Inder K. Khurana

University of Missouri at Columbia - Robert J. Trulaske, Sr. College of Business

Raynolde Pereira

University of Missouri at Columbia - School of Accountancy

Date Written: September 15, 2003

Abstract

This study provides international evidence that external financing dependence creates incentives for firms to undertake a higher level of voluntary accounting disclosure. For a sample of 856 observations from 34 countries and 18 different manufacturing industry sectors, we document that firms in industries that are more dependent on external financing also have higher average levels of accounting disclosure. This result holds after controlling for country-level differences in legal and financial systems, and firm-specific controls for firm size and performance. We then show that firms with higher disclose levels also have a lower cost of capital, which is evidence that voluntary accounting disclosures reduce information asymmetry and lower the firm's cost of external financing. These results are robust across a wide range of legal and financial systems around the world, and underscore the importance of accounting disclosures in firm financing decisions.

Keywords: voluntary disclosure, cost of capital, external financing

JEL Classification: D82, M41, M45, G38, N40, G12, G31

Suggested Citation

Francis, Jere R. and Khurana, Inder and Pereira, Raynolde, Global Evidence on Incentives for Voluntary Accounting Disclosures and the Effect on Cost of Capital (September 15, 2003). University of Missouri at Columbia, College of Business Working Paper, Available at SSRN: https://ssrn.com/abstract=456900 or http://dx.doi.org/10.2139/ssrn.456900

Jere R. Francis

Maastricht University ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands

Inder Khurana

University of Missouri at Columbia - Robert J. Trulaske, Sr. College of Business ( email )

331 Cornell Hall
Columbia, MO 65211
United States
573-882-3474 (Phone)
573-882-2437 (Fax)

Raynolde Pereira (Contact Author)

University of Missouri at Columbia - School of Accountancy ( email )

337 Cornell Hall
Columbia, MO 65211
United States
573-882-6253 (Phone)

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