Measuring Financial Statement Disaggregation Using XBRL

Research on the influence of stock liquidity on equity capital cost is still scarce in the context of developing countries. Furthermore, there are differences in the cost of equity proxies in the literature. This study aims to investigate the influence of stock liquidity on companies’ cost of equity capital in Indonesia from 2015 to 2022. Through a series of tests conducted, empirical evidence is found that stock liquidity has a significant influence on cost of equity capital estimated by Price-Earning to Growth Model and model by Ohlson & Juettner-Nauroth. As hypothesized, the lower the liquidity of a stock (the higher the value of stock illiquidity Amihud or its bid-ask spread), the higher the cost of equity capital faced by the company, and vice versa. On the other hand, the cost of equity capital estimated with the Capital Asset Pricing Model shows an illiquidity discount for less liquid shares.

Disclosure Level and Expected Cost of Equity Capital: An Examination of Analysts' Rankings of Corporate Disclosure and Alternative Methods of Estimating Expected Cost of Equity Capital

This paper deals with the impact of voluntary strategy disclosure in management reports on the cost of equity capital. Such an impact is not obvious, as investors might consider strategy information as “cheap talk” and therefore ignore it. We analyze a sample of 100 German listed firms from 2002 to 2008, measuring strategy disclosure levels using hand-collected strategy disclosure scores. We find that higher disclosure levels are, on average, associated with lower cost of equity capital even after controlling for overall disclosure quality. The paper contributes to the field by providing evidence that voluntary strategy disclosures in firms’ management reports reduce the information asymmetry component of cost of capital and therefore can be considered as a relevant source of information for investors.

Institutional Common Ownership and Cost of Capital

Labour outsourcing has become increasingly prevalent due to rising labour costs and a shrinking working-age population in China. Despite extensive research on outsourcing’s operational benefits, its effect on financing costs remains unclear. This study fills this gap by examining how labour outsourcing influences firms’ cost of equity capital. Using manually collected labour outsourcing data of A-share listed companies in China from 2012 to 2022, this study examines the impact of labour outsourcing on firms’ cost of equity capital. The findings are as follows: First, labour outsourcing significantly reduces the cost of equity capital. Second, mechanism testing shows that labour outsourcing can reduce companies’ business risk and agency costs, benefiting the improvement of investors’ expectations for firm performance, thereby resulting in a lower cost of equity capital. Third, moderating analysis indicates that labour outsourcing by non-state-owned enterprises, firms facing higher financing constraints and greater economic policy uncertainty and firms located in areas with lower unemployment rates is viewed by investors as a positive signal, significantly improves investor expectations and leads to a more substantial decrease in the cost of equity capital.

This study examines the relationship between the quality of a firm’s environmental disclosure and cost of equity capital based on the sample of chemical listed companies. We measure environmental disclosure quality using a disclosure index consistent with the Global Reporting Initiative (GRI, 2006). In addition to overall disclosure quality, we consider the type (i.e., hard/soft) of the disclosure in our analysis by the multiple regression method. Our analyses provide evidence that environmental disclosure besides the soft and hard environmental disclosure is not significantly associated with the cost of equity capital.

This study estimates the implied cost of equity capital of the Jordanian companies listed at the Amman Stock Exchange using the residual income valuation model suggested by Gebhardt, Lee, and Swaminathan (GLS) (2001). The results show that the implied cost of equity capital computed from the GLS approach produces a mean of ex-ante cost of equity capital of 9.6% for the Jordanian companies listed at the ASE. We also examine whether the Jordanian firms’ cost of equity capital, based on the residual income model, is a more reliable measure of cost of equity than the realised stock returns, by investigating the association between the cost of equity capital (or realised returns) and firm-specific risk proxies. We find that the implied cost of equity capital is associated significantly with all risk proxies in the predicted directions, while the realised stock returns show a significant association only with the size of the firms and market beta. We also find that the adjusted R2 of the regression of the implied cost of equity capital on the risk proxies is higher than that of the realised stock returns. We conclude that the implied cost of equity capital derived from the residual income valuation model is a more reliable measure for the ex-ante cost of equity capital than that of the realised stock returns in terms of the association with firm-specific risk proxies.

This paper aims to examine the effect of ownership structure on the cost of equity capital in the Tunisian context. Using panel data, the study provides evidence for a negative relationship between ownership concentration and cost of equity capital. However, most ownership composition variables validate the entrenchment effect. Results show an inverted U-shaped relationship between institutional ownership, foreign ownership and cost of equity capital. However, a U-shaped relationship is found between state ownership and the dependent variable. To alleviate endogeneity concerns and establish that the results are robust, the authors re-estimated the regressions using a dynamic approach. It supports the entrenchment effect of ownership concentration. A U-shaped relationship between this variable and the cost of equity capital is confirmed. However, a concave relationship is found when considering ownership composition variables. As for family ownership, the results from static and dynamic approaches are convergent and in favour of entrenchment effects.

This study analyzes the impact of adopting International Financial Reporting Standards (IFRS) on the cost of equity capital for firms listed on STOXX Europe 600 using a sample of 9773 firm-year observations between 1994 and 2022. We estimate the cost of equity capital using the modified price–earnings–growth ratio model and employ the GMM system to investigate the effect of IFRS Standards on the cost of equity capital. Our results indicate that IFRS adoption reduces firms’ cost of equity capital. We performed various sensitivity analyses to ensure the reliability of our results. Overall, this study contributes to the extant literature on the cost of equity capital implications of IFRS adoption and provides valuable insights for investors, regulators, and policymakers.

This paper aims to examine the moderating effect of the narrative risk disclosure quality on the association between firm performance and the cost of equity capital in the Egyptian setting. Manual content analysis and factorial principal component techniques are used to quantify the quality dimensions of the narrative risk disclosures. The weighted average cost of equity is used to estimate the firms’ costs of equity. A cross-sectional analysis was conducted over three years (2018–2020) for a sample of 73 non-financial firms listed on the Egyptian Stock Exchange (EGX100). Multiple OLS regression models are employed to test the hypotheses. The results reveal a negative association between firm performance and the cost of equity and, while such association strengthened when adding the narrative risk disclosure quality as a moderator variable. This suggests that risk disclosure is important to stockholders’ investment decision-making in the Egyptian context. Based on the dearth of literature related to the economic reverberations of narrative risk disclosure quality in emerging economies, this study contributes to the risk reporting literature by providing evidence on the moderating effect of the narrative risk disclosure quality and its reverberations on the firm’s cost of equity capital in one of the emerging economies as Egypt. With regard to the findings of this study, we expect to contribute to the practice and theory by providing new and different insights about the moderating effect of narrative risk disclosure on the association between firm performance and cost of equity capital.

T his study aims to investigate the effect of disclosure, ownership concentration and diversification on the cost of equity capital among non-financial Indonesian firms using IDX data during 2010-2014 periods . This study involves both mandatory and voluntary disclosure that distinguished from previous studies in the context of Indonesia that tend to use only mandatory or voluntary disclosure. Th is study show s that the disclosure and the concentration of ownership significantly and negativey influence the cost of equity capital. Both m andatory and voluntary disclosure tend to have negative impact on the cost of equity capital . It turns out that t he mandatory disclosure ha s a greater influence on the cost of equity capital than the voluntary disclosure. While, b usiness diversification , that are measured by Herfindahl Index and the number of business segments, significantly and positively affect the cost of equity capital. Lastly, relevant theoretical and practical implications are drawn from this study. Keywords: Disclosure, ownership concentration, business diversification, cost of equity capital

The purpose of this article is to investigate the economic consequences of accounting conservatism in the Middle Eastern and North African (MENA) region. In particular, motivated by the lack of such studies in the context of emerging countries, we empirically examine the effect of conditional conservatism on firms’ cost of equity capital. Using a sample of firms pertaining to 13 MENA countries during the period 2004–2007, we conduct three sets of tests. First, we assess the existence of conservatism in our sample following the model of Basu (1997). Second, we examine the association between conservatism and cost of equity capital. Third, we test the effect of two disaggregated measures of conservatism – conservatism with respect to bad news (BNEWS) and conservatism with respect to good news (GNEWS) on the cost of equity. Results suggest that, overall firms in MENA region adopt conservative reporting. Furthermore, as predicted we find a negative association between conditional conservatism and the cost of equity capital. This evidence is robust to time series changes of variables and cross-country differences. The results also report a negative association between the two disaggregated measures of conservatism and the cost of equity capital. Our article gives additional light on the benefits of accounting conservatism.

PurposeThe purpose of this paper is to investigate whether managerial ownership affects the association between shareholder rights and the cost of equity capital.Design/methodology/approachPrior literature has shown that strong shareholder rights are associated with a lower level of cost of equity capital. This paper empirically tests the interaction between managerial ownership and shareholder rights on affecting the cost of equity capital, using Gompers et al.'s governance score and Ohlson and Juettner‐Nauroth's estimate of cost of equity capital. To mitigate the endogeneity arising from other governance variables affecting both shareholder rights and the cost of equity capital, the paper adopts both OLS and two‐stage regression.FindingsThe results indicate that managerial ownership aligns managers' interests with those of shareholders, leading to a lesser degree of agency problems and lower cost of equity capital. Furthermore, the evidence suggests that managerial ownership could substitute for shareholder rights in affecting the cost of equity capital, making strong shareholder rights less important in a high managerial ownership setting.Research limitations/applicationsFindings in this paper suggest that firms need to consider the interaction between managerial ownership and shareholder rights in designing their governance structure to minimize their cost of equity capital.Originality/valueThis paper reveals the interaction between two major governance variables in affecting firm valuation.

Company value can be increased by minimizing the cost of equity capital. The cost of equity capital is the rate of return required by investors in accordance with company condition. The purpose of this study was to analyze the influence of earning management and asymmetry information on the cost of equity capital with disclosure level as the moderating variable by presenting Company Size, Market Capitalization, Leverage, and Profitability as the control variables. The population of the study was 148 manufacturing companies listed on the Indonesia Stock Exchange with the total unit of analysis was 330. Then, hypotheses were analyzed with software Eviews 9. The results of the study showed that earning management, asymmetry information, company size, profitability, and disclosure level had significant influences on the cost of equity capital for both large and small companies. Then, it also showed that disclosure level was able to moderate the influence of earning management on the cost of equity capital, but it was not able to moderate the influence of asymmetry information on the cost of equity capital both large and small companies. It was interesting because the coefficients of influence were different based on the company size. On small companies, the influence of disclosure level on asymmetry information was negative.

This paper examines the effect of accounting restatements on a firm's cost of equity capital. We show that, on average, accounting restatements lead to both decreases in expected future earnings and increases in the firm's cost of equity capital. Depending on the model used, relative percentage increases in the cost of equity capital average between 7 and 19% in the month immediately following a restatement. The relative increase in the cost of capital dissipates as time passes and after controlling for analyst forecast biases, but continues to average between 6 and 15% in the most conservative setting. We also show that restatements initiated by auditors are associated with the largest increase in the cost of capital, and that firms with greater leverage experience greater increases in their cost of capital. Overall, our evidence is consistent with accounting restatements lowering the perceived earnings quality of the firm and increasing investors' required rates of return.