Reputation-Based Disclosure and Cost of Capital: The Role of Controlling Ownership
DOI:
https://doi.org/10.33736/ijbs.4619.2022Keywords:
reputation, disclosure, ownership structure, cost of capitalAbstract
This study aims at examining the effect of reputation-based disclosure on the cost of capital and the role of the controlling ownership as a moderating variable. The sample of the study consists of manufacturing firms listed on the Indonesia Stock Exchange (IDX) for the years 2009–2013. This study uses price-earnings to growth (PEG) as a proxy of the cost of capital. The result demonstrates that reputation-based voluntary disclosure has a negative effect on the cost of capital. The controlling ownership further strengthened this effect. The cost of capital is reduced by higher disclosure. However, the interaction between reputation-based disclosure and ownership structure has a positive effect on the cost of capital. The result of this study is robust, using other measurements of the cost of capital (Fama-French model). It implies that investors can utilize firms’ disclosure as a signal to estimate returns. Firms, however, strive to impress investors positively to reduce the expected returns.
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