1. Current pricing models ignore the role of information risk and focus instead on market riskrn2. Greater levels of accounting disclosures can sometimes reduce the cost of equity capital, but not alwaysrn3. The source of disclosures is important. Information released by the business press has more impact than that released by management or analystsrnThe existence and the strength of the relationship between the quality of accounting disclosures and the cost of equity capital remains a controversial issue. The idea that high quality financial reporting leads to a lower cost of equity capital and a higher stock valuation is intuitive and widespread. For example, Neel Foster, a former member of the Financial Accounting Standards Board (FASB) once wrote: "More information always equates to less uncertainty, and it is clear thatrnpeople pay more for certainty. Less uncertainty results in less risk and a consequent lower premium being demanded". There is unfortunately very little theoretical work backing up this appealing idea, and the empirical evidence is equivocal at best.
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