Voluntary disclosure-cost of equity nexus and the moderating role of corporate governance: evidence from an extremely politically unstable context

Journal article


Alia, M. A., Abdeljawad, I., Jallad, S. E. and Rashid, M. 2022. Voluntary disclosure-cost of equity nexus and the moderating role of corporate governance: evidence from an extremely politically unstable context. International Journal of Islamic and Middle Eastern Finance and Management. https://doi.org/10.1108/IMEFM-02-2021-0069
AuthorsAlia, M. A., Abdeljawad, I., Jallad, S. E. and Rashid, M.
Abstract

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

Design/methodology/approach
This study uses all non-bank companies listed with the Palestine Exchange during 2009–2018. The level of VD was estimated by using a checklist of 35 items modified for the context of Palestine. A second checklist with 19 items was used to measure the commitment of the Palestinian companies with CG requirements. Five proxies for Ke were tested: three ex-ante Capital Asset Pricing Model-like proxies and two ex-post realized return proxies.

Findings
The findings state that the VD negatively impacted Ke. Interaction effect of CG and VD helps reduce the Ke. As such, for firms with better CG, the increase in VD decreases the Ke more than their standalone effect. For control variables, leverage, size and growth of firms exhibited positive impacts on Ke, whereas quality of auditors found a negative connection.

Practical implications
Managers in similar context, like Palestine, may prefer flexibility of smaller size and adopt conservative growth strategies to cope with adverse events. Firms adopt CG and VD as complementary forces to tackle instability and market expectation.

Originality/value
Studies connecting VD-CG-Ke nexus from similar context are 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.

KeywordsCorporate governance; Voluntary disclosure ; Cost of equity ; Political instability ; Palestine Exchange
Year2022
JournalInternational Journal of Islamic and Middle Eastern Finance and Management
PublisherEmerald
ISSN1753-8394
Digital Object Identifier (DOI)https://doi.org/10.1108/IMEFM-02-2021-0069
Official URLhttps://www.emerald.com/insight/content/doi/10.1108/IMEFM-02-2021-0069/full/html
Publication dates
Print02 Feb 2022
Publication process dates
Accepted31 Dec 2021
Deposited30 Jun 2022
Accepted author manuscript
License
Output statusPublished
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https://repository.canterbury.ac.uk/item/915yq/voluntary-disclosure-cost-of-equity-nexus-and-the-moderating-role-of-corporate-governance-evidence-from-an-extremely-politically-unstable-context

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Accepted author manuscript
Manuscript VD CG Ke Rev.pdf
License: CC BY-NC 4.0

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