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An International Meeting of American Accounting
Association
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Accounting Standards and their Effect on the Expected Cost of Equity Capital: Evidence from the Swiss Stock Exchange |
Maria T. Caban - Garcia
University of South Florida
Susan E. Cammack
Washburn University
Abstract: Economic theory has established the link between information quality the cost of equity capital. An empirical implication of the theory is that firms’ accounting standard choices and disclosure policies will positively affect their cost of equity capital. The current study empirically examines this link by comparing the cost of equity capital of Swiss firms that prepare their financial statements using International Accounting Standards with that of a sample of Swiss firms that use local accounting standards. Using panel data for the period between 1993 and 1999 and a two-step model that controls for self-selection bias, the analysis documents a negative relationship between the expected cost of equity capital and IAS. The relationship remains even after controlling for firm specific risk factors.