Financial information quality and cost of equity evidence from firms listed in Ho Chi Minh stock exchange

Abstract

Agency theory argues that separation of ownership and control in firms creates asymmetric information between shareholders and managers. This paper uses Agency theory as a framework to investigate the association between quality of financial information and cost of equity. The paper uses Big4 as a proxy for quality of financial information and CAPM framework to estimate the cost of equity. After controlling for firm size, leverage, market-to-book, and return on assets, a significant negative relation between quality of financial information and cost of equity is found. The result supports the theoretical and empirical works relating information quality and cost of equity.