Impact of Financial Reporting Quality on the Implied Cost of Equity Capital: Evidence from the Malaysian Listed Firms

Abstract

This paper investigates the factors associated with firms’ financial reporting
choices and their economic impact on the cost of equity capital for the
Malaysian listed firms over the period of 2000-2007. We find that there is a
negative association between financial reporting quality choice and the
number of shareholders, industrial competition, capital intensity and
leverage. We also find that firms choosing to provide financial information
of higher quality enjoy a lower cost of equity capital using implied cost of
equity capital estimates. These findings suggest that those firms in emerging
markets which provide higher quality of financial reporting reduce
information risk, and these firms also obtain significant economic benefits.