The value of voluntary disclosure - A study of the relationship between voluntary disclosure quality, earnings quality and cost of equity capital:

Abstract: During the last twenty years a substantial amount of research has been done with regard to whether or not a company can decrease its cost of equity capital by improving its voluntary disclosure. This essay study the relationship between voluntary disclosure, earnings quality, and cost of equity capital for firms listed on the Nasdaq OMX Stockholm large cap during the full year of 2006. The study shows a positive correlation between voluntary disclosure and the cost of equity capital, which indicates that Swedish companies get a higher cost of equity capital by disclosing more voluntary information to the market and investors. Furthermore, a positive relation between voluntary disclosure and earnings quality is found which implies that companies with better earnings quality have better voluntary disclosure. The relation between earnings quality and cost of equity capital is not statistically significant indicating that earnings does not affect the cost of equity capital for Swedish companies. The results of the study should be interpreted with caution given concerns with regard to validity caused by subjectivity in the voluntary disclosure proxy and the time difference between the annual reports release date and the announce date of the earnings per share used in the proxy for cost of equity capital.