Endogeneity and the Dynamics of Voluntary Disclosure Quality: Is There Really an Effect on the Cost of Equity Capital?

Posted: 23 Feb 2020

Multiple version iconThere are 2 versions of this paper

Date Written: December 17, 2019

Abstract

Research on the effects of voluntary disclosure quality on the cost of equity capital is often plagued by endogeneity concerns. In this paper, I use a dynamic panel system GMM estimator, which provides internal instruments from the firm's history that directly address endogeneity arising from unobserved heterogeneity and simultaneity. By using hand‐collected voluntary disclosure scores for firms listed in the Swiss stock exchange, I examine the dynamic relation between voluntary disclosure quality and the cost of equity capital in a panel over the period of 10 years. The results suggest that the relation between voluntary disclosure quality and the cost of equity capital becomes insignificant after controlling adequately for potential dynamic endogeneity, simultaneity, and unobserved heterogeneity.

Keywords: voluntary disclosure quality, cost of equity capital, Dynamic Panel System GMM Estimation, Dynamic Endogeneity

Suggested Citation

Eugster, Florian, Endogeneity and the Dynamics of Voluntary Disclosure Quality: Is There Really an Effect on the Cost of Equity Capital? (December 17, 2019). Contemporary Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3526368

Florian Eugster (Contact Author)

Stockholm School of Economics ( email )

PO Box 6501
Stockholm, 11383
Sweden

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