Voluntary Disclosure-Cost of Equity Nexus and the Moderating Role of Corporate Governance: Evidence from an Extremely Politically Unstable Context
Publication Type
Original research

Purpose - Higher degree of and commitment to voluntary disclosure (VD) and corporate governance (CG) help contain information asymmetry, leading to lower cost of equity (Ke). This study provides evidence on the VD-CG-Ke nexus from a context characterized by extreme political instability.

Design/methodology/approach - We use all non-bank companies listed with the Palestine Exchange (PEX) during 2009 to 2018. The level of VD was estimated using a checklist of 35 items based on the existing literature on Palestine. A second checklist with 19 items was employed to measure the commitment of the Palestinian companies with CG requirements. Five proxies for Ke were tested: three ex-ante CAPM-like proxies and two ex-post realized return proxies.

Findings - We found that the VD negatively impacted Ke. The results for the moderating role of CG on VD-Ke nexus were much robust. For firms with better CG, the increase in VD decreases the Ke more than the same with firms with lower CG. For control variables, leverage, size, and growth of firms exhibited positive impacts on cost of equity, while quality of auditors found a negative connection.

Practical implications - In an unstable context, similar to Palestine, firms may prefer flexibility of smaller size and adopt conservative growth strategies to cope with adverse events. In that case, firms use the governance system to substitute the instability of the environment. We discuss implications from the asymmetric information theory standpoint for cost of equity in emerging market with extreme political uncertainties. 

Originality/value – Studies connecting VD-CG-Ke nexus from similar context is rare. Results of this study forward that emphasis on disclosure and governance practices will help boost the confidence of the investors, reduce the Ke, and create an incentive for more investment.

International Journal of Islamic and Middle Eastern Finance and Management
Emerald Publishing Limited
Publisher Country
United States of America
Thomson Reuters
Impact Factor
Publication Type
Both (Printed and Online)