Accounting information quality and systematic risk
- 411 Downloads
Whether and how accounting information quality affects the cost of capital has been a matter of much debate. We contribute to this debate by linking accounting information quality to systematic risk, inspired by recent theoretical discussions. Using the universe of firms jointly listed in the CRSP and Compustat databases from 1962 to 2012, we find that accounting information quality is significantly and negatively related to systematic risk. This relation is robust to alternative proxies for the two constructs, including a model-free measure of risk. Further analysis indicates that improving accounting information quality causes systematic risk to decrease. These findings have important implications for disclosure decisions, portfolio management, and asset pricing.
KeywordsAccounting information quality Systematic risk Abnormal accruals Endogeneity
JEL ClassificationG12 G14 M40
- Kogan S, Routledge B, Sagi J, Smith N (2009) Information content of public firm disclosures and the Sarbanes-Oxley Act. Working Paper, The University of Texas, AustinGoogle Scholar
- Osborne J (2002) Notes on the use of data transformations. Practical Assessment, Research & Evaluation 8, Published onlineGoogle Scholar
- Sharpe WF (1964) Capital asset prices: a theory of market equilibrium under conditions of risk. J Finance 19:425–442Google Scholar