Effects of Corporate Disclosure on a Firm's Cost of Capital

Bachelor Thesis from the year 2015 in the subject Business economics - Investment and Finance grade: 1.0 accadis Hochschule Bad Homburg course: Final Thesis language: English abstract: The potential relation of increased levels of corporate disclosure on a firm's cost of capital remains of great importance both from a research-focussed and business- oriented point-of-view; however the existence of methodological drawbacks has led to ever more complex studies which eventually made the literature vast and confusing for outside readers. The purpose of this thesis was to organise and thereby simplify the different perspectives on a dynamic issue.It is argued that in theory enhanced transparency levels the marketplace by spreading information more equally among investors. Consequently the information asymmetry component is mitigated which translates into lower levels of estimation risk transaction costs and default risk. After all theoretical studies provided evidence that increased disclosure lowers the costs of capital.However since neither of the involved components is directly observable a myriad of approaches emerged to approximate actual figures. Although most of these proxies follow similar patterns it is argued that none of the present approaches is free from constraints which in turn affects the reliability of existing empirical studies. Research after all still lacks a generally accepted and holistic approach to the present day. In this context one of the most recent findings provides a new and rather praxis-oriented perspective by arguing that firms and investors are merely interested in a good-practice level of disclosure.Regardless of the perspective an ultimate conclusion has yet to be revealed by the literature and it seems illusory that academics and practitioners agree on one approach in the future. Nevertheless the contribution of this thesis was merely to structure and simplify the current state of a dynamic issue. The a