이익투명성, 보수주의 및 자본비용

We examine the association between firm-level accounting transparency, conditional conservatism and cost of equity capital. Accounting transparency is defined as the extent to which earnings captures changes in a firms’ economic conditions in way that is understandable by investors. Prior research provides a theoretical link between accounting transparency and cost of equity capital. If earnings transparency is high, then earnings captures to a large extent changes in a firm’s economic condition in way that is understandable by investors and there will be little information asymmetry. If earnings transparency is low, then information asymmetry will be high unless alternative information about the firm value is available at low costs. If such information is not available, then investors will look for other, more costly information. Because investors who obtain costly information need to be compensated, cost of capital will be higher than it would have been had the information been available at low costs. Accounting conservatism is the asymmetric timeliness of earnings to reflect bad news versus good news. Existing theories predicts that conservatism increases firm’s efficiency of contracting, market value and cost of capital. A recent analytical work demonstrates that more precise bad news reporting reduces the uncertainty about expected future cash flows, lowering cost of capital. Alternatively, it is expected that more informative disclosure of bad news reduces the cost of equity capital by improving risk sharing across generations of investors. The study shows that an asymmetric reporting system that reports bad bews more precisely than good news results in higher firm value and more efficient risk sharing. Following prior research, we construct our first empirical proxy of accounting transparency based on the idea that firms with large auditors, a large and accurate analyst following, and less evidence of earnings smoothing likely to reflects greater transparency of the firm’s information environments. Our second measure of transparency variable is based on the explanatory power of earnings and change in earnings for contemporaneous returns. We employ the C_Score as a firm-level metric of conservatism that can reflect the timing of conservatism changes and the variations of the conservatism. We find that our earnings transparency measures are significantly negatively related to our proxies for implied cost of equity capital. This indicates that accounting transparency captures dimensions of cost of equity capital that other risk factors do not. Similarly, we find, as predicted, evidence of an inverse relation between firm-level conservatism and the cost of equity capital. We further test and find no evidence that transparency (conservatism) affects the link between conservatism (transparency) either in a complementary way or in a substitutive way.