Abstract
We examine the effect of Regulation Fair Disclosure (Reg FD) on the cost of equity capital. We find some evidence that (1) the cost of capital declines in the post-Reg FD period relative to the pre-Reg FD period, on average, for a broad cross-section of US firms, (2) the decrease in the cost of capital post Reg FD is mainly for medium and large firms but is insignificant for small firms, and (3) the decrease in the cost of capital post Reg FD is systematically related to firm characteristics indicative of selective disclosure before Reg FD. In contrast, we find little evidence of a decrease in the cost of capital for American Depositary Receipts and US-listed foreign firms, which are legally exempt from Reg FD. Overall, our findings do not support a conclusion in recent studies that the cost of capital has increased post Reg FD and, if anything, suggest the opposite.
| Original language | English |
|---|---|
| Pages (from-to) | 106-144 |
| Number of pages | 39 |
| Journal | Review of Accounting Studies |
| Volume | 15 |
| Issue number | 1 |
| DOIs | |
| State | Published - Mar 2010 |
Bibliographical note
Funding Information:Acknowledgments We gratefully acknowledge the helpful comments and suggestions from Peter Easton (the editor), two anonymous referees, Anwer Ahmed, Daniel Cohen, Dan Collins, Randy Elder, Shane Heitzman, Jack Hughes, David Hulse, Mo Hussein, Susan Krische, Oliver Li, Alfred Liu, Mary Lea McAnally, Kofi Okyere, Tom Omer, George Plesko, Ed Swanson, Senyo Tse, Connie Weaver, Jian Zhou, David Ziebart, and seminar participants at Georgetown University, London Business School, Santa Clara University, SUNY at Binghamton, Syracuse University, Texas A&M University, University of Connecticut, University of Kentucky, the 2006 American Accounting Association Annual Meeting, and the 2006 NTU International Conference on Finance. We thank Thomson Financial for providing analyst forecast data through the Institutional Brokers Estimate System (I/B/E/S) and Brian Bushee for generously providing us his institutional investor classification data. Zhihong Chen acknowledges the financial support provided by the City University of Hong Kong (#7200077).
Funding
Acknowledgments We gratefully acknowledge the helpful comments and suggestions from Peter Easton (the editor), two anonymous referees, Anwer Ahmed, Daniel Cohen, Dan Collins, Randy Elder, Shane Heitzman, Jack Hughes, David Hulse, Mo Hussein, Susan Krische, Oliver Li, Alfred Liu, Mary Lea McAnally, Kofi Okyere, Tom Omer, George Plesko, Ed Swanson, Senyo Tse, Connie Weaver, Jian Zhou, David Ziebart, and seminar participants at Georgetown University, London Business School, Santa Clara University, SUNY at Binghamton, Syracuse University, Texas A&M University, University of Connecticut, University of Kentucky, the 2006 American Accounting Association Annual Meeting, and the 2006 NTU International Conference on Finance. We thank Thomson Financial for providing analyst forecast data through the Institutional Brokers Estimate System (I/B/E/S) and Brian Bushee for generously providing us his institutional investor classification data. Zhihong Chen acknowledges the financial support provided by the City University of Hong Kong (#7200077).
| Funders | Funder number |
|---|---|
| City University of Hong Kong | 7200077 |
Keywords
- Cost of capital
- Information asymmetry
- Regulation fair disclosure
- Selective disclosure
ASJC Scopus subject areas
- Accounting
- General Business, Management and Accounting