Idiosyncratic information and the cost of equity capital: A meta-analytic review of the literature

Abstract

This paper provides a quantitative review of the literature on the repercussions of idiosyncratic information on firms’ cost of equity (CoE) capital. In total, I review the results of 113 unique studies examining the CoE effects of informationQuantity, PrecisionandAsymmetry. My results suggest that the association between firm-specific information and CoE is subject to moderate effects. First, the link betweenQuantityand CoE is moderated by disclosure types and country-level factors in that firms in comparatively weakly regulated countries tend to enjoy up to four times greater CoE benefits from more expansive disclosure—depending on the type of disclosure—than firms in strongly regulated markets. Second, a negative relationship betweenPrecisionand CoE is only significant in studies using non-accrual quality proxies forPrecisionand risk factor-based (RFB)/valuation model-based (VMB) proxies for CoE. Third, almost all VMB studies confirm the positive association betweenAsymmetryand CoE, but there is notable variation in the conclusions reached when ex post CoE measurers are used.

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