How cost of capital is changing: The effect of accounting information

• Date: 01 January 2021
• DOI: http://doi.org/10.1002/jcaf.22462
• Author: Nida Türegün
• Published date: 01 January 2021

J Corp Acct Fin. 2021;32:129–138. wileyonlinelibrary.com/journal/jcaf © 2020 Wiley Periodicals, Inc. 129

BLIND PEER REVIEW

How cost of capital is changing: The effect of accounting

information

Nida Türegün

Ozyegin University –School of Applied

Sciences, Istanbul, Turkey

Correspondence

Nida Türegün, Ozyegin University –

School of Applied Sciences, Cekmekoy

Kampüsü, Nisantepe Mah., Orman Sok.,

34794 Istanbul, Turkey.

Email: nida.turegun@ozyegin.edu.tr

Abstract

The main objective of this paper is to explore the effects of information on the

costs of capital. Thestudy will offer insights on how firms can make use of infor-

mation to manipulate the costs of capital to achieve the desired goals. It offers

divergent view on the effects of information on the costs of capital. Moreover, it

examines the effect on the capital costs of the firm's accounting information by

taking earnings quality as a proxy. The analytical results suggest that all of the

accounting information components have an effect on the capital cost of the

firm. The further finding of this paper is that the quality and quantity of infor-

mation have an effect on the capital cost in a firm. Importantly, information has

different effects on the informed and uninformed investors. This paper offers

new insights on the role of private and public information on affecting the costs

of capital on both informed and the uninformed investors.

KEYWORDS

accounting information, cost of capital, firm value, quality of earnings

1|INTRODUCTION

One of the most important accounting decisions that a

firm has to make is to uncover the costs of capital. Impor-

tantly, the capital costs impact the form of a firm's finan-

cial reports and profitability. The main objective of this

study is to explore the effects of information on the costs

of capital by taking earnings quality as a proxy. The study

will offer insights on how firms can make use of informa-

tion to manipulate the costs of capital to achieve the

desired goals.

Moreover, it offers a direct connection among

accounting information, financial reports and the costs of

capital. The literature review examines the costs of capi-

tal, the nature of businesses and how these two affect the

capital costs in a business. The literature review offers

divergent view on the effects of information on the capi-

tal costs. This paper uses secondary sources of informa-

tion to collect facts in the effects of capital and so to

apply panel data analysis.

The analytical results suggest that all of the

accounting information components have an effect on

the capital cost of the firm. The further finding of this

paper is that the quality and quantity of information have

an effect on the capital cost in a firm. Importantly, infor-

mation has different effects on the informed and

uninformed investors. Moreover, this paper offers new

insights on the role of private and public information on

affecting the costs of capital on both informed and the

uninformed investors. Understanding the connection

concerning accounting information and the costs of capi-

tal affects the ability of a firm to allocate its capital to

investments that offers the best value for money.

2|LITERATURE REVIEW

The central focus of this paper is to explore the associa-

tion between accounting information, the firms' costs of

capital and the returns to investors. The theoretical

Received: 14 May 2020 Revised: 1 July 2020 Accepted: 3 July 2020

DOI: 10.1002/jcaf.22462

J Corp Acct Fin. 2020;1–10. wileyonlinelibrary.com/journal/jcaf © 2020 Wiley Periodicals LLC 1