TY  - BOOK
AU  - Clinch,Greg
TI  - Disclosure quality, diversification and the cost of capital
SN  - 0312-8962
AV  - HD31 AUS 
PY  - 2013///
CY  - Los Angeles
PB  - Sage
KW  - Cost of capital
KW  - Disclosure quality
KW  - Diversification
N2  - Based on a stylized infinite-period and multi-asset model of a securities market, I discuss several aspects of the link between disclosure quality and cost of capital, with a particular focus on how diversification influences this link. I first show that because investors have finite horizons and thus face price risk, disclosure plays a role in determining ex ante cost of capital in such a setting, contrary to the result of Christensen et al. ((2010) Information and the cost of capital: An ex ante perspective. Accounting Review 83: 817–848). With respect to diversification, I highlight the role of three aspects of a ‘large economy’ that influence how disclosure quality affects cost of capital: (1) the number of firms across which risk is distributed; (2) the number of investors among whom this risk is shared; and (3) the number of information signals (disclosures) available to investors from which to extract information. Finally, I extend the model to include the effects of non-rational traders who follow a simple trading heuristic and show that this results in an additional disclosure-contingent factor in equilibrium price that does not diversify away under fairly general conditions
UR  - https://doi.org/10.1177/0312896213510700
ER  -