Regulation fair disclosure and the cost of equity capital

Zhihong Chen, Dan S. Dhaliwal, Hong Xie

Research output: Contribution to journalArticle

29 Scopus citations

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 languageEnglish (US)
Pages (from-to)106-144
Number of pages39
JournalReview of Accounting Studies
Volume15
Issue number1
DOIs
StatePublished - Mar 2010

Keywords

  • Cost of capital
  • Information asymmetry
  • Regulation fair disclosure
  • Selective disclosure

ASJC Scopus subject areas

  • Accounting
  • Business, Management and Accounting(all)

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