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- Publisher Website: 10.1111/1911-3846.12498
- Scopus: eid_2-s2.0-85073945744
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Article: Idiosyncratic Information, Moral Hazard, and the Cost of Capital
Title | Idiosyncratic Information, Moral Hazard, and the Cost of Capital |
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Authors | |
Issue Date | 2019 |
Citation | Contemporary Accounting Research, 2019, v. 36, n. 4, p. 2178-2206 How to Cite? |
Abstract | © CAAA This paper examines the effects of idiosyncratic accounting information on a firm's cost of capital. By embedding a moral hazard problem into a multifirm asset-pricing model, I show that moral hazard distorts the sharing of idiosyncratic risk but does not affect the sharing of systematic risk in the economy. A firm-level improvement in idiosyncratic information reduces the firm's cost of capital even though it does not affect the implied cost of capital inferred from publicly traded shares. Moreover, an economy-level improvement in idiosyncratic information reduces the risk premium for idiosyncratic risk but increases the risk premium for systematic risk, resulting in an ambiguous net effect on the firm's cost of capital. These results provide alternative explanations for the mixed empirical evidence on the relation between information quality and the cost of capital. |
Persistent Identifier | http://hdl.handle.net/10722/285849 |
ISSN | 2023 Impact Factor: 3.2 2023 SCImago Journal Rankings: 3.086 |
SSRN | |
ISI Accession Number ID |
DC Field | Value | Language |
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dc.contributor.author | Gao, Pingyang | - |
dc.date.accessioned | 2020-08-18T04:56:48Z | - |
dc.date.available | 2020-08-18T04:56:48Z | - |
dc.date.issued | 2019 | - |
dc.identifier.citation | Contemporary Accounting Research, 2019, v. 36, n. 4, p. 2178-2206 | - |
dc.identifier.issn | 0823-9150 | - |
dc.identifier.uri | http://hdl.handle.net/10722/285849 | - |
dc.description.abstract | © CAAA This paper examines the effects of idiosyncratic accounting information on a firm's cost of capital. By embedding a moral hazard problem into a multifirm asset-pricing model, I show that moral hazard distorts the sharing of idiosyncratic risk but does not affect the sharing of systematic risk in the economy. A firm-level improvement in idiosyncratic information reduces the firm's cost of capital even though it does not affect the implied cost of capital inferred from publicly traded shares. Moreover, an economy-level improvement in idiosyncratic information reduces the risk premium for idiosyncratic risk but increases the risk premium for systematic risk, resulting in an ambiguous net effect on the firm's cost of capital. These results provide alternative explanations for the mixed empirical evidence on the relation between information quality and the cost of capital. | - |
dc.language | eng | - |
dc.relation.ispartof | Contemporary Accounting Research | - |
dc.title | Idiosyncratic Information, Moral Hazard, and the Cost of Capital | - |
dc.type | Article | - |
dc.description.nature | link_to_subscribed_fulltext | - |
dc.identifier.doi | 10.1111/1911-3846.12498 | - |
dc.identifier.scopus | eid_2-s2.0-85073945744 | - |
dc.identifier.volume | 36 | - |
dc.identifier.issue | 4 | - |
dc.identifier.spage | 2178 | - |
dc.identifier.epage | 2206 | - |
dc.identifier.eissn | 1911-3846 | - |
dc.identifier.isi | WOS:000508488000010 | - |
dc.identifier.ssrn | 3393782 | - |
dc.identifier.issnl | 0823-9150 | - |