Information disclosure by industry and the cost of equity: Evidence from a quasi-natural experiment in China

Abstract

Based on manually collected data, this study examines the impact of information disclosure by industry (IDI) on firms’ cost of equity. Using a staggered difference-in-difference design, we find that the cost of equity of the firms that adopt IDI regulations is decreased. The results are robust when we address endogeneity and use alternative measurements of the cost of equity. Moreover, this effect is more pronounced in firms with higher individual ownership and located in areas with weak legal environments. The path analysis results show that the enactment of IDI regulations reduces the cost of equity by improving information transparency and reducing the agency cost of management.