, Volume 27, Issue 4, pp 383-401

The effect of increased disclosure on cost of capital: Evidence from China

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Abstract

This study examined the relationship between disclosure and the cost of capital. Prior studies empirically testing this relationship provided mixed findings, and also raised several concerns, such as the endogeneity of disclosure, the information disclosure environment, and the sample size. This study investigated this relationship based on data from the Chinese capital market where a unique institutional arrangement makes the disclosure exogenous. This unique characteristic, in conjunction with a less stringent information environment and a big sample size, helped address these concerns. Our findings confirmed the negative relationship between disclosure and cost of capital.