Disclosure, Information Asymmetry and the Cost of Equity Capital: Evidence from Indonesia

Erna Setiany · Djoko Suhardjanto

12 citations0/0 files storedInternational symposia in economic theory and econometrics

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Auditing, Earnings Management, Governance Corporate Finance and Governance Corporate Social Responsibility Reporting

Abstract

Originality/Value: This research is based on the central assumption that disclosure enhances the level of information while EQL remains the focus for investors. This research is also the first to study CSR disclosure, intellectual capital disclosure, and ERM disclosure together as a proxy for disclosure. The findings confirm that managers can reduce their companies’ agency conflict by increasing their level of disclosure. Managers can also reduce the COEC by reducing ASYM through increased disclosure. This also implies that increasing the level of disclosure will be effective in reducing the COEC for companies in emerging markets, such as Indonesia.

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References

1964CAPITAL ASSET PRICES: A THEORY OF MARKET EQUILIBRIUM UNDER CONDITIONS OF RISK*1989Agency Theory: An Assessment and Review 1985Continuous Auctions and Insider Trading 1965The Valuation of Risk Assets and the Selection of Risky Investments in Stock Portfolios and Capital Budgets 2001Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature 2000Investor protection and corporate governance 1975THE VALUATION OF RISK ASSETS AND THE SELECTION OF RISKY INVESTMENTS IN STOCK PORTFOLIOS AND CAPITAL BUDGETS**This paper is another in a series of interrelated theoretical and statistical studies of corporate financial and investment policies being made under grants from the Rockefeller Foundation, and more recently the Ford Foundation, to the Harvard Business School. The generous support for this work is most gratefully acknowledged. The author is also much indebted to his colleagues Professors Bishop, Christenson, Kahr, Raiffa, and (especially) Schlaifer, for extensive discussion and commentary on an earlier draft of this paper; but responsibility for any errors or imperfections remains strictly his own.[Professor Sharpe's paper, “Capital Asset Prices: A Theory of Market Equilibrium Under Conditions of Risk” (Journal of Finance, September 1964) appeared after this paper was in final form and on its way to the printers. My first section, which parallels the first half of his paper (with corresponding conclusions), sets the algebraic framework for sections II, III and VI, (which have no counterpart in his paper) and for section IV on the equilibrium prices of risk assets, concerning which our results differ significantly for reasons which will be explored elsewhere. Sharpe does not take up the capital budgeting problem developed in section V below.]

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