Idiosyncratic Information, Moral Hazard, and the Cost of Capital

• 成果类型: Article
• 署名作者: Gao, Pingyang
• 署名单位: University of Chicago
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/1911-3846.12498
• 发表日期: 2019
• 页码: 2178-2206
• 关键词: disclosure; diversification; asymmetry; earnings; QUALITY; RISK

摘要

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.