Disclosure level and cost of equity capital: evidence from the banking industry
Article first published online: 21 OCT 2005
Copyright © 2005 John Wiley & Sons, Ltd.
Managerial and Decision Economics
Special Issue: Corporate Governance: An International Perspective
Volume 26, Issue 7, pages 431–444, October/November 2005
How to Cite
Poshakwale, S. and Courtis, J. K. (2005), Disclosure level and cost of equity capital: evidence from the banking industry. Manage. Decis. Econ., 26: 431–444. doi: 10.1002/mde.1256
- Issue published online: 21 OCT 2005
- Article first published online: 21 OCT 2005
The impact of voluntary disclosures on cost of equity capital is of significant interest to investors and managers. Using a disclosure scoring model this association is examined for 135 banks from Europe, North America and Australia. After controlling for the cross-sectional variation in beta, firm size, price to book value and price to earnings ratios, the study found that higher disclosure levels are associated with a reduction in cost of equity capital. Disclosures about risk management practices seem to most influence the reduction in the cost of equity capital. European banks show greater reduction in the cost of equity capital from improved disclosures compared to their non-European counterparts. Copyright © 2005 John Wiley & Sons, Ltd.