Are Information Attributes Priced?

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

Plumlee, Marlene A. and Botosan, Christine, Are Information Attributes Priced? (January 2007). AAA 2007 Financial Accounting & Reporting Section (FARS) Meeting Papers, Available at SSRN: https://ssrn.com/abstract=475222 or http://dx.doi.org/10.2139/ssrn.475222