How cost of capital is changing: The effect of accounting information

Abstract

The main objective of this paper is to explore the effects of information on the costs of capital. The study will offer insights on how firms can make use of information to manipulate the costs of capital to achieve the desired goals. It offers divergent view on the effects of information on the costs of capital. Moreover, it examines the effect on the capital costs of the firm's accounting information by taking earnings quality as a proxy. The analytical results suggest that all of the accounting information components have an effect on the capital cost of the firm. The further finding of this paper is that the quality and quantity of information have an effect on the capital cost in a firm. Importantly, information has different effects on the informed and uninformed investors. This paper offers new insights on the role of private and public information on affecting the costs of capital on both informed and the uninformed investors.