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Finance & Accounting Subject Group - Firm Specific Information & the Cost of Equity Capital by Huafeng (Jason) Chen, Sauder School of Business

When Feb 13, 2013
from 11:00 AM to 12:30 PM
Where CJBS, W2.02
Contact Name
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Philip G. Berger, Huafeng (Jason) Chen, and Feng Li


We develop a comprehensive and large-sample measure of a firm’s information quality.

The measure is the ratio of firm-specific return variation to firm-specific cash-flow

variation. Empirical evidence supports the validity of our measure. Using this measure,


we find that cost of equity capital decreases by about -0.4% on an annual basis

if a firm’s information quality increases by one standard deviation. This is consistent

with the joint hypotheses that (1) firm-specific stock returns contain economic information

s argued by Morck, Yeung, and Yu (2000) and (2) better information quality

can lower the cost of equity.


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