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
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: Suggested Citation
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