Reputation-Based Disclosure and Cost of Capital: The Role of Controlling Ownership

Authors

  • Evi Gantyowati Faculty of Economics and Business, Universitas Diponegoro, Indonesia; Faculty of Economics and Business, Universitas Sebelas Maret, Indonesia
  • Abdul Rohman Faculty of Economics and Business, Universitas Diponegoro, Indonesia
  • Tarmizi Achmad Faculty of Economics and Business, Universitas Diponegoro, Indonesia
  • Doddy Setiawan Faculty of Economics and Business, Universitas Sebelas Maret, Indonesia

DOI:

https://doi.org/10.33736/ijbs.4619.2022

Keywords:

reputation, disclosure, ownership structure, cost of capital

Abstract

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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Published

2022-03-31

How to Cite

Evi Gantyowati, Abdul Rohman, Tarmizi Achmad, & Doddy Setiawan. (2022). Reputation-Based Disclosure and Cost of Capital: The Role of Controlling Ownership. International Journal of Business and Society, 23(1), 359–370. https://doi.org/10.33736/ijbs.4619.2022