Abstract
The objective of the paper is to test the impact of corporate disclosure on the cost of equity capital for firms listed on Vietnam’s stock market. We use the Botosan (1997) scoring methodology and the residual income valuation model to measure disclosure level and the implied cost of equity capital. Our findings suggest that, taking into account other determinants, disclosure has a significant reducing impact on the cost of equity capital.
Highlights
Raising equity capital from financial markets plays a important role in the development of a firm due to many advantages compared to other financing forms
Among factors able to influence the cost of capital, the attention paid for corporate disclosure is all the more important when the latter is at the discretion of firm management
Studying the impact of information on the cost of capital is expected to help finding positive aspects of disclosure, thereby creating real motivation for firms to disclose more, contributing to increase transparency in Vietnamese financial markets. We examine this impact by using the scoring methodology in Botosan (1997) to quantify the level of firm disclosure and the residual income valuation model to measure the implied cost of equity capital
Summary
Raising equity capital from financial markets plays a important role in the development of a firm due to many advantages compared to other financing forms. High costs of equity capital will negatively affect firm value creation and performance. Searching for factors able to affect the cost of capital in order to lower it is always of interest to theorists as well as firm management. By disclosing more information, firms can reduce this risk premium and benefit from a lower cost when raising equity capital (Botosan, 1997; Botosan & Plumlee, 2002; Botosan, Plumlee & Xie, 2004; Easley, Hvidkjaer & O’Hara, 2002; Easley & O'Hara, 2004). Among factors able to influence the cost of capital, the attention paid for corporate disclosure is all the more important when the latter is at the discretion of firm management
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