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| Type | Master's Thesis |
| Scope | Discipline-based scholarship |
| Title | An Investigation on the Causal Effect of Voluntary Disclosure Quality on Cost of Equity Capital |
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| Institution | University of Zurich |
| Faculty | Faculty of Economics, Business Administration and Information Technology |
| Number of Pages | 94 |
| Date | 2012 |
| Abstract Text | The relation between voluntary disclosure quality and cost of equity capital is widely known to be affected by self-selection. This study controls for potential endogeneity bias by adopting a two-stage least squares approach in a cross-sectional setting. Voluntary disclosure quality is proxied by the annual reports disclosure scores for a well-diversified sample of Swiss firms as developed by the Department of Banking and Finance of the University of Zurich. Further, an ex-ante cost of capital metric derived from the dividend discount model is used in this study. Empirical evidence shows that the association between voluntary disclosure quality and cost of equity differs with a firm's stock listing history. While the relation is predicted to be negative for firms at the IPO stage, it is likely reversed at some point in a firm's stock listing history. These results suggest that analysts' information processing activities negatively moderate the impact of voluntary disclosure quality on firm value. Importantly, the predicted interaction between voluntary disclosure quality and stock listing history remains significant when adjusting for endogeneity. |
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