A Tale of Beauties and Beasts: Testing the Optimal Disclosure Hypothesis
(2014) In Multinational Finance Journal 18(1/2). p.139-167- Abstract
- According to the cost-of-capital hypothesis, increased voluntary disclosure should reduce information asymmetries, lower the cost of capital, and increase firm value. The optimal-disclosure hypothesis, however, predicts that costs related to voluntary disclosure lead to the existence of an interior optimum of disclosure that maximizes firm value. These hypotheses are empirically tested using a previously unexplored database that covers disclosure rankings for listed Swedish firms between 2007 and 2012 (rendering around 1000 firm-years). The evidence is consistent with the optimal-disclosure hypothesis. I find a robust quadratic relationship between Tobin’s Q and the level of disclosure in annual reports. I find no significant relationship,... (More)
- According to the cost-of-capital hypothesis, increased voluntary disclosure should reduce information asymmetries, lower the cost of capital, and increase firm value. The optimal-disclosure hypothesis, however, predicts that costs related to voluntary disclosure lead to the existence of an interior optimum of disclosure that maximizes firm value. These hypotheses are empirically tested using a previously unexplored database that covers disclosure rankings for listed Swedish firms between 2007 and 2012 (rendering around 1000 firm-years). The evidence is consistent with the optimal-disclosure hypothesis. I find a robust quadratic relationship between Tobin’s Q and the level of disclosure in annual reports. I find no significant relationship, however, between Tobin’s Q and disclosure in quarterly reports or web-based reporting. (Less)
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https://lup.lub.lu.se/record/d61cb0e7-d4b8-4109-9216-872bcb29cdcc
- author
- Jankensgård, Håkan LU
- organization
- publishing date
- 2014
- type
- Contribution to journal
- publication status
- published
- subject
- keywords
- voluntary disclosure, cost of capital, Tobin’s Q, optimal disclosure
- in
- Multinational Finance Journal
- volume
- 18
- issue
- 1/2
- pages
- 29 pages
- ISSN
- 1096-1879
- language
- English
- LU publication?
- yes
- id
- d61cb0e7-d4b8-4109-9216-872bcb29cdcc
- date added to LUP
- 2016-11-10 10:15:11
- date last changed
- 2018-11-21 21:27:16
@article{d61cb0e7-d4b8-4109-9216-872bcb29cdcc,
abstract = {{According to the cost-of-capital hypothesis, increased voluntary disclosure should reduce information asymmetries, lower the cost of capital, and increase firm value. The optimal-disclosure hypothesis, however, predicts that costs related to voluntary disclosure lead to the existence of an interior optimum of disclosure that maximizes firm value. These hypotheses are empirically tested using a previously unexplored database that covers disclosure rankings for listed Swedish firms between 2007 and 2012 (rendering around 1000 firm-years). The evidence is consistent with the optimal-disclosure hypothesis. I find a robust quadratic relationship between Tobin’s Q and the level of disclosure in annual reports. I find no significant relationship, however, between Tobin’s Q and disclosure in quarterly reports or web-based reporting.}},
author = {{Jankensgård, Håkan}},
issn = {{1096-1879}},
keywords = {{voluntary disclosure; cost of capital; Tobin’s Q; optimal disclosure}},
language = {{eng}},
number = {{1/2}},
pages = {{139--167}},
series = {{Multinational Finance Journal}},
title = {{A Tale of Beauties and Beasts: Testing the Optimal Disclosure Hypothesis}},
volume = {{18}},
year = {{2014}},
}