Publication: Does graph disclosure bias reduce the cost of equity?
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2007-04
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Abstract
Research on disclosure and capital markets focuses primarily on the amount of
information provided but pays little attention to the presentation format of this
information. This paper examines the impact of graph utilization and graph quality
(distortion) on the cost of equity capital, controlling for the interaction between
disclosure and graph distortion. Despite the advantages of graphs in communicating
information, our results show that graph utilization does not have a significant impact
on users’ decisions. However we observe a significant (negative) association between
graph distortion and the exante
cost of equity. This effect though, disappears if we use
realised returns as a measure of expost
cost of equity. Moreover, we find that
disclosure and graph distortion interact so that the impact of disclosure on the cost of
capital depends on graph integrity. For low level of overall disclosure, graph distortion
reduces the exante
cost of equity. However for high level of disclosure graph distortion
increases the exante
cost of equity.
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Disclosure, Cost of equity capital, Graphs