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Effect of Impairment-Testing Disclosures on the Cost of Equity Capital

hal.structure.identifier
dc.contributor.authorPaugam, Luc*
hal.structure.identifierDauphine Recherches en Management [DRM]
dc.contributor.authorRamond, Olivier*
dc.date.accessioned2015-01-13T11:37:38Z
dc.date.available2015-01-13T11:37:38Z
dc.date.issued2015
dc.identifier.issn0306-686X
dc.identifier.urihttps://basepub.dauphine.fr/handle/123456789/14522
dc.language.isoenen
dc.subjectImpairment Testen
dc.subjectCost of Capitalen
dc.subjectInformation Risken
dc.subjectDisclosuresen
dc.subjectIAS 36en
dc.subject.ddc658.1en
dc.subject.classificationjelG.G3.G31en
dc.subject.classificationjelG.G3.G32en
dc.subject.classificationjelM.M4.M41en
dc.titleEffect of Impairment-Testing Disclosures on the Cost of Equity Capitalen
dc.typeArticle accepté pour publication ou publié
dc.description.abstractenInformation risk – the uncertainty regarding the parameters of the distribution of firms’ future cash flows – generates valuation errors and is costly to investors who require a higher return to compensate for greater information risk. We argue that, on average, through their impairment-testing disclosures, managers convey information that reduces information risk. Using disclosures from firms included in the SBF 250 index of Euronext Paris over the period 2006–2009, we document a negative association between impairment-testing disclosures and implied cost of equity capital. We find that prospective entity-specific impairment-testing disclosures are negatively associated with cost of capital whereas descriptive disclosures exhibit no association with cost of capital. Additionally, we document that firms which avoid booking impairments when low performance indicators suggest a greater likelihood of impairments exhibit no association between impairment-testing disclosures and cost of capital. This suggests that those firms’ disclosures are perceived as less accurate by investors. We also find that prospective impairment-testing disclosures are negatively related to analysts’ forecast errors. Our study adds to the literature on the economic consequences of financial reporting and sheds light on the consequences of one accounting mechanism, namely impairment-testing disclosures, ensuring conservatism of financial reporting.en
dc.relation.isversionofjnlnameJournal of business finance & accounting
dc.relation.isversionofjnlvol42en
dc.relation.isversionofjnlissue5-6en
dc.relation.isversionofjnldate2015
dc.relation.isversionofjnlpages583–618en
dc.relation.isversionofdoi10.1111/jbfa.12113en
dc.relation.isversionofjnlpublisherWileyen
dc.subject.ddclabelOrganisation et finances d'entrepriseen
dc.description.halcandidateoui
dc.description.readershiprecherche
dc.description.audienceInternationalNTER
dc.relation.Isversionofjnlpeerreviewedoui
hal.identifierhal-01276421*
hal.version1*
hal.update.actionupdateMetadata*
hal.author.functionaut
hal.author.functionaut


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