Are Information Attributes Priced?
42 Pages Posted: 6 Dec 2003
Date Written: January 2007
Easley and O'Hara 2004 (EO) and Lambert, Leuz, and Verrecchia 2006 (LLV) model the links between information attributes and cost of capital. We explore how differences in the authors' interpretations of their models and their assumptions lead to different predictions, and we examine the relation between cost of equity capital and the information attributes posited by EO. We find that cost of equity capital is increasing in composition, and decreasing in precision and dissemination as predicted by EO. Our results suggest that managers might realize cost of equity capital benefits by providing greater public disclosure, taking actions to encourage greater dissemination of information, and selecting accounting and disclosure practices that increase the precision of their information set.
Keywords: Cost of equity capital, disclosure, information asymmetry, information precision
JEL Classification: D82, G12, M41
Suggested Citation: Suggested Citation