دانلود رایگان مقاله هزینه سرمایه و شفافیت درآمدها

abstract

We provide evidence that firms with more transparent earnings enjoy a lower cost of capital. We base our earnings transparency measure on the extent to which earnings and change in earnings covary contemporaneously with returns. We find a significant negative relation between our transparency measure and subsequent excess and portfolio mean returns, and expected cost of capital, even after controlling for previously documented determinants of cost of capital.

7. Conclusion

This study examines whether firms with more transparent earnings enjoy a lower cost of capital. We base our measure of earnings transparency on the explanatory power of the returns-earnings relation, i.e., the extent to which earnings and change in earnings covary contemporaneously with returns. We find that earnings transparency is significantly negatively associated with cost of capital by showing that our earnings transparency measure is negatively related to subsequent excess returns and differences in portfolio mean subsequent returns incremental to the three Fama-French and momentum factors. These findings indicate that earnings transparency captures dimensions of cost of capital that the factors do not. We also find a significant negative relation between our earnings transparency measure and an estimate of expected cost of capital based on the four-factor model.This finding indicates that earnings transparency is systematically related to the Fama-French and momentum factors. However, we also find that earnings transparency reflects information associated with expected cost of capital incremental to that reflected in the fundamental risk characteristics underlying these factors. Inferences relating to the subsequent excess and portfolio mean returns and expected cost of capital tests are robust to inclusion of explicit controls for leverage, growth, and the magnitude of the earnings response coefficient in the returns-earnings relation. The subsequent excess and portfolio mean returns inferences are robust to including controls for changes in cash flow and cash flow risk. The expected cost of capital inferences are robust to using a measure of expected cost of capital implied by analysts’ earnings forecasts. Taken together, our findings provide evidence that firms with more transparent earnings enjoy a lower cost of capital.