The Effect of Voluntary Disclosure and Earnings Quality on Cost of Equity

Abstract: The objective of this research is to examine the level and effect of voluntary disclosure and the  earnings  quality  on  cost  of  equity  capital  of  listed  manufacturing  company  in Indonesian  Stock  Exchange  in  2008.  This  study  uses  secondary  data  from  the  annual reports of 75 manufacturing firms listed in Indonesia Stock Exchange (IDX) in 2008. We use  multiple  regressions  to  test  hypotheses.  We  find  that  the  average  of  voluntary disclosure is only 29.7%, which indicates that firms’ disclosure in the annual report is still low. The result also shows that the level of voluntary disclosure, in contrary to expectation, has  positive  and  significant  effect  on  cost  of  equity  capital.  We  find  some  evidences  that earnings quality can reduce cost of equity capital.

Keywords: Voluntary disclosure, earnings quality, cost of equity capital

Author: Ardiansyah

Journal Code: jpmanajemengg130084

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