Accounting Information, Disclosure, and the Cost of Capital

@article{Lambert2007AccountingID,
  title={Accounting Information, Disclosure, and the Cost of Capital},
  author={Richard A. Lambert and C. Leuz and Robert E. Verrecchia},
  journal={Financial Accounting},
  year={2007}
}
In this paper we examine whether and how accounting information about a firm manifests in its cost of capital, despite the forces of diversification. We build a model that is consistent with the Capital Asset Pricing Model and explicitly allows for multiple securities whose cash flows are correlated. We demonstrate that the quality of accounting information can influence the cost of capital, both directly and indirectly. The direct effect occurs because higher quality disclosures affect the… Expand
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