Disentangling the Effects of Corporate Disclosure on the Cost of Equity Capital: A Study of the Role of Intellectual Capital Disclosure

Posted: 2 May 2018

See all articles by Musa Mangena

Musa Mangena

University of Nottingham Business School

Jing Li

University of Bradford - School of Management

Venancio Tauringana

Bournemouth University - Accounting and Finance

Date Written: July 14, 2014

Abstract

In this paper, 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 UK 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. Additionally, 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 characterised 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.

Suggested Citation

Mangena, Musa and Li, Jing and Tauringana, Venancio, Disentangling the Effects of Corporate Disclosure on the Cost of Equity Capital: A Study of the Role of Intellectual Capital Disclosure (July 14, 2014). Journal of Accounting, Auditing and Finance, Vol. 31, No. 1, 2016, Available at SSRN: https://ssrn.com/abstract=3162583

Musa Mangena (Contact Author)

University of Nottingham Business School ( email )

United Kingdom

Jing Li

University of Bradford - School of Management ( email )

Emm Lane
Bradford, West Yorkshire Bd9 4JL
United Kingdom

Venancio Tauringana

Bournemouth University - Accounting and Finance ( email )

Centre for Corporate Governance and Regulation
Fern Barrow
Poole BH12 5BB, Dorset
United Kingdom

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