Transparency and the cost of equity capital : A study of Indian companies

Abstract

This report is an empirical study of the voluntary and few mandatory disclosure made by the Indian companies for a period of 3 years (FY 2008- FY 2010). As per the clause 49 of the listing agreement the companies needs to disclose the information divided as mandatory and non mandatory disclosure. The Indian companies considered for the study were 30 index making companies for the current period. A total of 52 items was selected under 10 broad categories. The scope of disclosure study was limited to the annual reports of the respective companies. Based on the information available in the balance sheet the score has been calculated for each item. The summation of all the scores was converted in company score index. Betas for all the companies have been calculated for a period of 3 years. This is further used to calculate cost of equity capital. The findings indicate that the cost of equity capital is significantly affected by created company score index, PAT/Sales, book value and market capitalization. This study also throws some light on the matter of voluntary disclosure in the Indian companies.