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| Type | Bachelor's Thesis |
| Scope | Discipline-based scholarship |
| Title | Disclosure Quality and its Effect on Swiss Firms' Cost of Capital |
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| Institution | University of Zurich |
| Faculty | Faculty of Economics, Business Administration and Information Technology |
| Number of Pages | 38 |
| Date | 2014 |
| Abstract Text | Executive Summary I. Problem Definition The cost of capital is of central importance for firms that have raised or plan to raise money at the capital markets. The management has to ensure that the weighted average cost of capital (WACC) is lower than the return on the invested capital (ROIC). Otherwise, the firm will diminish in value. Moreover, the cost of capital is also a central factor for the valuation of firms, business segments and individual projects. Due to its significant influence on the result, it is a value driver. Consequently, the minimisation of the cost of capital has to be a primary goal for the management. The cost of capital is influenced by various different factors, such as the capital structure, the firm size and the beta. Another potential factor may be the disclosure quality of a firm. There already exists some research on the association between the disclosure quality and the cost of capital or, more frequently, on the cost of equity. However, there are different conclusions on whether this association exists or not. Many studies find evidence for a significant association between the disclosure quality and the cost of capital (or at least on the cost of equity) (Chen, Chen and Wei (2003); Hail (2000)), others only do so under certain restricting conditions (Botosan (1997); Botosan and Plumlee (2002); Lambert, Leuz and Verrecchia (2005)), and a minority does not find one at all (Daske (2004); Francis, Nanda and Olsson (2008)). This emphasizes the importance of further research on this association. It is obvious that conclusive evidence on this relation has important implications for firms. In case of a significant, negative association between the disclosure quality and the cost of capital, firms would have an additional tool to minimise the WACC. Moreover, only little of the existing research regards Swiss firms. This is relevant since the relation between the disclosure quality and the cost of capital may be varying for different countries. Furthermore, most of the research does not examine the effect on the overall cost of capital, but only on the cost of equity. However, the WACC should be the main interest for a firm since this is the total cost that has to be paid. |
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