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Disentangling the effects of corporate disclosure on the cost of equity capital: a study of the role of intellectual capital disclosure

Disentangling the effects of corporate disclosure on the cost of equity capital: a study of the role of intellectual capital disclosure
Disentangling the effects of corporate disclosure on the cost of equity capital: a study of the role of intellectual capital disclosure
In this article, we investigate whether intellectual capital (IC) and financial disclosures jointly affect the firm’s cost of equity capital. In contrast to prior research, we disaggregate disclosures into IC and financial disclosures and examine whether the two disclosure types are jointly related to the cost of equity capital. We also investigate whether IC and financial disclosures have an interaction effect on the cost of equity capital. Using data for a sample of 125 U.K. firms, we find a negative relationship between the cost of equity capital and IC disclosure. We find that the relationship between financial disclosure and the cost of equity capital is magnified when combined with IC disclosure. In addition, we find that IC and financial disclosures interact in shaping their effects on the cost of equity capital. Further analyses suggest that the effect of financial disclosure on the cost of equity capital is augmented for firms characterized by a medium level of IC disclosure. These results provide important insights into the relationship between disclosures and cost of equity capital and have policy and practical implications.
0148-558X
3-27
Mangena, M.
d8381ead-07de-4308-bc0e-593e5bed3957
Li, J.
c01989cb-c2a9-41ed-9e23-0618c53a3e85
Tauringana, Venancio
27634458-b041-4bc1-94da-3e031d777e4f
Mangena, M.
d8381ead-07de-4308-bc0e-593e5bed3957
Li, J.
c01989cb-c2a9-41ed-9e23-0618c53a3e85
Tauringana, Venancio
27634458-b041-4bc1-94da-3e031d777e4f

Mangena, M., Li, J. and Tauringana, Venancio (2016) Disentangling the effects of corporate disclosure on the cost of equity capital: a study of the role of intellectual capital disclosure. Journal of Accounting, Auditing & Finance, 31 (1), 3-27. (doi:10.1177/0148558X14541443).

Record type: Article

Abstract

In this article, we investigate whether intellectual capital (IC) and financial disclosures jointly affect the firm’s cost of equity capital. In contrast to prior research, we disaggregate disclosures into IC and financial disclosures and examine whether the two disclosure types are jointly related to the cost of equity capital. We also investigate whether IC and financial disclosures have an interaction effect on the cost of equity capital. Using data for a sample of 125 U.K. firms, we find a negative relationship between the cost of equity capital and IC disclosure. We find that the relationship between financial disclosure and the cost of equity capital is magnified when combined with IC disclosure. In addition, we find that IC and financial disclosures interact in shaping their effects on the cost of equity capital. Further analyses suggest that the effect of financial disclosure on the cost of equity capital is augmented for firms characterized by a medium level of IC disclosure. These results provide important insights into the relationship between disclosures and cost of equity capital and have policy and practical implications.

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More information

e-pub ahead of print date: 14 July 2014
Published date: 1 January 2016
Organisations: Southampton Business School

Identifiers

Local EPrints ID: 398201
URI: http://eprints.soton.ac.uk/id/eprint/398201
ISSN: 0148-558X
PURE UUID: 7a99ac63-9065-4113-b04a-40a08878df1f
ORCID for Venancio Tauringana: ORCID iD orcid.org/0000-0002-1433-324X

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Date deposited: 20 Jul 2016 15:28
Last modified: 15 Mar 2024 03:31

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Contributors

Author: M. Mangena
Author: J. Li

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