While analyzing and planning for the financial needs of a company, you need to consider the cost of capital. An important question in analyzing the cost of capital is whether or not firms receive capital benefits from greater disclosure. While some financial analysts believe that greater disclosure does indeed result in a firm receiving capital benefits, there are others who argue the opposite. Read the following article to learn more about this debate:
Botosan, C. A. (2006). Disclosure and the cost of capital: What do we know? [Special issue]. Accounting & Business Research, 36, 31-40.
Having read the article, do you think that public disclosure diminishes information asymmetry within an organization and in the market?
How does this reduction in information asymmetry affect the cost of capital of a company?
How is a company's cost of capital calculated?
Support your answer with reasons and real-world examples.