Publication:
Segment disclosure and cost of capital

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URI: https://hdl.handle.net/10016/35341
ISSN: 0306-686X
DOI: https://doi.org/10.1111/jbfa.12106
UXXI: AR/0000016918
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segment_JFA_2015_ps.pdf (771.1 KB)
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2015-05-01
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Wiley
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Abstract
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.
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Segment disclosure, Earnings quality, Forecast error, Cost of capital
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Blanco, B., Garcia Lara, J. M., & Tribo, J. A. (2015). Segment Disclosure and Cost of Capital. Journal of Business Finance & Accounting, 42 (3-4), pp. 367-411. https://doi.org/10.1111/jbfa.12106
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