Disclosure, conservatism and the cost of equity capital : a review of the foundation literature

Artiach, Tracy & Clarkson, Peter (2011) Disclosure, conservatism and the cost of equity capital : a review of the foundation literature. Accounting And Finance, 51(1), pp. 2-49.

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In this review piece, we survey the literature on the cost of equity capital implications of corporate disclosure and conservative accounting policy choice decisions with the principle objective of providing insights into the design and methodological issues, which underlie the empirical investigations. We begin with a review of the analytical studies most typically cited in the empirical research as providing a theoretical foundation. We then turn to consider literature that offers insights into the selection of proxies for each of our points of interest, cost of equity capital, disclosure quality and accounting conservatism. As a final step, we review selected empirical studies to illustrate the relevant evidence found within the literature. Based on our review, we interpret the literature as providing the researcher with only limited direct guidance on the appropriate choice of measure for each of the constructs of interest. Further, we view the literature as raising questions about both the interpretation of empirical findings in the face of measurement concerns and the suitability of certain theoretical arguments to the research setting. Overall, perhaps the message which is most clear is that one of the most controversial and fundamental issues underlying the literature is the issue of the diversifiability or nondiversifiability of information effects.

Impact and interest:

20 citations in Scopus
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10 citations in Web of Science®

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ID Code: 43761
Item Type: Journal Article
Refereed: Yes
Keywords: Conservatism, Disclosure, Cost of equity capital, Diversifiability
DOI: 10.1111/j.1467-629X.2010.00387.x
ISSN: 0810-5391
Subjects: Australian and New Zealand Standard Research Classification > COMMERCE MANAGEMENT TOURISM AND SERVICES (150000) > ACCOUNTING AUDITING AND ACCOUNTABILITY (150100) > Accounting Auditing and Accountability not elsewhere classified (150199)
Divisions: Current > QUT Faculties and Divisions > QUT Business School
Current > Schools > School of Accountancy
Deposited On: 03 Aug 2011 00:01
Last Modified: 02 Nov 2011 22:57

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