CRC 649 II: Financial Accounting and Cost of Capital

The goal of this project is to explore the impact of financial accounting information on the cost of capital. While prior analytical research focuses on the valuation role of financial accounting when investigating this link, we will develop and test a model which captures both the valuation role and the contracting role of accounting. The validity of this model will then be tested empirically using international accounting and capital market data. We expect the results from this project to explain some of the existing conflicting evidence about the interplay of public information in capital markets and the cost of capital.