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Review of Quantitative Finance and Accounting

, Volume 52, Issue 1, pp 85–103 | Cite as

Accounting information quality and systematic risk

  • Xuejing XingEmail author
  • Shan Yan
Original Research
  • 411 Downloads

Abstract

Whether and how accounting information quality affects the cost of capital has been a matter of much debate. We contribute to this debate by linking accounting information quality to systematic risk, inspired by recent theoretical discussions. Using the universe of firms jointly listed in the CRSP and Compustat databases from 1962 to 2012, we find that accounting information quality is significantly and negatively related to systematic risk. This relation is robust to alternative proxies for the two constructs, including a model-free measure of risk. Further analysis indicates that improving accounting information quality causes systematic risk to decrease. These findings have important implications for disclosure decisions, portfolio management, and asset pricing.

Keywords

Accounting information quality Systematic risk Abnormal accruals Endogeneity 

JEL Classification

G12 G14 M40 

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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Department of Accounting and FinanceUniversity of Alabama in HuntsvilleHuntsvilleUSA
  2. 2.Department of Management, Sigmund Weis School of BusinessSusquehanna UniversitySelinsgroveUSA

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