The Relevance of Accounting Information; Effects on Cost of Capital

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School of Business | Bachelor's thesis
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Date

2023

Department

Laskentatoimen laitos

Major/Subject

Mcode

Degree programme

Laskentatoimi

Language

en

Pages

25

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Abstract

The cost of capital is one of the most critical aspects of firms’ operations as it is used to determine whether funds are being invested effectively. Assessing the cost of capital is of vital importance to firms’ long-term viability and ability to generate wealth for shareholders. Understanding different factors affecting the cost of capital is important for firms in order to be able to influence their capital costs and ensure the best conditions for value creation. The topic of accounting information and its effects on the cost of capital has been a central theme in the field of accounting and finance research. Whether information quality is linked to systematic risk, or a separate factor of undiversifiable risk, has sparked debate among academics. Existing literature reveals contradictory findings and the evidence on this matter is inconclusive. The purpose of this study is to analyze findings in prior research and present evidence for and against the notion that accounting information affects the cost of capital. The topic of accounting information regarding cost of capital is broad with studies focusing on different factors yet there is still much to be uncovered in this field of research. Better understanding regarding this topic is of high value for firms’ managers pursuing high investment efficiency and appropriate correspondence regarding the needs of investors. This study contributes to the exiting array of studies by comparing relevant findings based on available evidence and further seeking to summarize the existing knowledge regarding this topic.

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Thesis advisor

Guo, Meng

Keywords

accounting information, accounting quality, systematic risk, cost of capital

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https://urn.fi/URN:NBN:fi:aalto-202306254283

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[kand] Kauppakorkeakoulu / BIZ (Open Access)