Segment Disclosure and Cost of Capital

Belen Blanco, Juan M. Garcia Lara, Josep A. Tribo

Research output: Contribution to journalArticlepeer-review

53 Scopus citations

Abstract

We investigate whether segment disclosure influences cost of capital. Improved segment reporting is expected to decrease cost of capital by reducing estimation risk. However, in a competitive environment segment disclosure may also generate uncertainties about future prospects and lead to a larger cost of capital. Asset-pricing tests confirm that segment disclosure is a priced risk factor. Also, segment disclosure reduces ex-ante estimates of cost of equity capital and other measures connected to risk. These results suggest a negative relation between segment disclosure and cost of capital. Our results also show that competition reduces, but does not eliminate, the previous relationship.

Original languageEnglish
Pages (from-to)367-411
Number of pages45
JournalJournal of Business Finance and Accounting
Volume42
Issue number3-4
DOIs
StatePublished - 1 Apr 2015

Keywords

  • Cost of capital
  • Earnings quality
  • Forecast error
  • Segment disclosure

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