The Effect of the Earning Transparency on cost of capital common stock based on The Fama-French and Momentum Factors

Abstract

Abstract The aim of this study was to evaluate the effect of the earning transparency on cost of capital common stock in companies listed on the Stock Exchange in Tehran. In this context, the variables of financial leverage, firm size, book to market ratio, market risk and momentum factor were used to assess the cost of capital common stock variable based on Fama–French Momentum Factors and earning transparency benchmark was used to measure earning transparency. In this study, a sample of 45 companies (16 industries) listed in the Tehran Stock Exchange were selected and research data has been extracted for the period 2002 to 2012. In this study, correlation method was used, and Statistical analysis of data was performed at 95% confidence level, and hypothesis testing was done by multivariate linear regression model. The results of this study showed that, of the variables studied, only the relationship between the three variables of financial leverage, company size and momentum with cost of capital common stock were significant statistically, while, there was no significant relationship statistically between earning transparency and book-to-market ratio and market risk with the cost of capital common stock.