Voluntary Disclosure, Timely Disclosure and Cost of Eaquity Capital: Evidence from Teran Securities Exchange

The aim of this research is studying the associations of voluntary and timely disclosure with cost of equity capital and the effect of timely disclosure on the relation between voluntary disclosure and cost of equity capital. In this regard, a disclosure checklist, Gordon’s growth model and earnings announcement lag were respectively used for measuring companies’ disclosure score, their cost of equity capital and their timely disclosure. Also, the number of two hundred forty three companies listed on Tehran Securities Exchange during 2010 to 2014 (totally 1170 firm-year observations) were selected as the sample of research using systematic screening method. Furthermore, required data related to these observations were collected from ‘Codal’ database and ‘TSE-CLIENT 2’ software. The results of hypotheses testing applied with regression analysis showed a significant negative relation between voluntary disclosure and cost of equity capital. Also, it showed a significant positive association between earnings announcement lag and cost of equity capital. In addition, the tests demonstrated a significant negative relation between voluntary disclosure and cost of equity capital for firms with shorter earnings announcement lag and an insignificant relation between mentioned variables for firms with longer earnings announcement lag. These findings clearly demonstrate that increased disclosure level reduces the cost of external finance, and also improves the marketability of firms’ equities which may directly impact growth opportunities for companies, especially when information is communicated to investors in a timely fashion.

voluntary disclosure, timely disclosure, cost of capital, earnings announcement lag