Disclosure channel and cost of capital: evidence from open vs closed conference calls

Review of Accounting and Finance - 2009
YijiangZhao1, MichaelDavis2, Kevin T.Berry2
1Kogod School of Business, American University, Washington, DC, USA, and
2School of Management, University of Alaska‐Fairbanks, Fairbanks, Alaska, USA

Tóm tắt

PurposeThe purpose of this paper is to examine the effect on the cost of capital of increased disclosure that reduces information asymmetry among market participants.Design/methodology/approachThis study uses the decision to regularly hold open (closed) conference calls pre‐Reg FD as a proxy for a commitment to the policy of public (selective) disclosure and a cross‐sectional research design to examine the associations between open/closed conference calls and three proxies for firms' cost of capital (i.e. bid‐ask spreads, share turnover, and implied costs of capital).FindingsThe results show that firms that commit to open calls exhibit lower relative bid‐ask spreads, lower implied costs of capital, and higher share turnover than firms that commit to closed calls.Practical implicationsThe findings suggest that increased disclosure that “levels the playing field” for small investors benefits investors as a whole by improving firms' market liquidity and reducing the cost of capital.Originality/valueThis study contributes to existing literature on the association between corporate disclosure and firms' cost of capital.

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