Do Poor Quality Financial Disclosures Raise Cost Of Capital?

How does the quality of financial disclosures affect the cost of capital for corporate investments? The commonly held belief has been that poor quality disclosures raise capital cost. Professor Sunil Dutta’s research suggests a more nuanced relationship. Poor disclosure quality makes capital more expensive for low growth firms, but may make it cheaper for high growth firms.

Professor Sunil Dutta is Egon & Joan von Kaschnitz Distinguished Professor of Accounting and International Business at the Haas School of Business, University of California, Berkeley and a Visiting Scholar at the ISB.