George Artikis, Sofia Eleftheriou, John Sorros

(Department of Business Administration, University of Piraeus, Piraeus 18534, Greece)

 

Abstract: The goal of this paper is to investigate the impact of the firm’s accounting information on its cost of capital and, in turn, how the latter affects its excess stock returns. The analysis in this paper has certain novelties: First, it extends prior works by investigating how certain components of accounting information affect stock returns through their direct effect on the cost of capital, second, it makes use of a large sample of US manufacturing firms, and third, it makes use, for the first time in this literature, of the methodology of panel data. The empirical findings displayed that accounting information affects directly the firm’s cost of capital. This, in turn, exerts a negative effect on the firm’s excess stock returns, an empirical documentation not captured in case that researchers attempt to direct link the cost of capital and excess stock returns.

 

Key words: accounting information; cost of capital; excess returns; us manufacturing; panel data

 

JEL Codes: M41, C33

 

 

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