Annual Report Length and Corporate Cost of Equity Capital

Abstract

Abstract:

As security regulators in the world specify and refine the disclosure requirements and systems for listed companies, corporate annual report length is increasing year by year. This trend has drawn wide attention from domestic and foreign scholars. Using firm-year observations of Chinese A-share listed firms with hand-collected data of annual report length, we investigate the effect of annual report length on corporate cost of equity capital. We find that:(1) Firms with longer annual reports have lower cost of equity capital, indicating that longer and more detailed annual reports can help alleviate the problem of information asymmetry that investors face, and thus focal firms can pay lower costs for equity financing; (2) The negative association between annual report length and corporate cost of equity capital is more pronounced in non-state-owned enterprises and in companies that hire non-big 4 auditors. The above conclusions are ro-bust after controlling for the endogeneity problem, main variable measurement and estimation method choice. Furthermore, we find that annual report length also can help reduce the cost of debt financing. Our findings provide important policy implications for understanding why corporate annual reports become increasingly longer, what economic consequence will be caused and how to reduce corporate finan-cing cost.

Key words: annual report length, cost of equity capital, nature of property rights, external audit quality, cost of debt

Luo Jinhui, Peng Yifei, Chen Yilin. Annual Report Length and Corporate Cost of Equity Capital[J]. , 2020, 32(1): 235-245.

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