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Risk Disclosure and Cost of Equity: A Bayesian Approach

Sciprofile linkJose Miguel Tirado-Beltrán, Sciprofile linkJosé David Cabedo, Dennis Esther Muñoz-Ramírez
Published: 30 January 2020
Revista CEA , Volume 6, pp 25-43; doi:10.22430/24223182.1497

Abstract: This paper aims to analyze the relationship between risk information disclosure and the cost of equity of companies in the Spanish capital market. This study uses a set of 71 firms listed on Madrid stock exchange between 2010 and 2015; all of them are non-financial listed companies for which profit forecasts existed. The problem was analyzed using a Bayesian linear regression approach. The results show that cost of equity and disclosed risk information are not related if a global view of the latter is adopted. However, a positive relationship between financial risks and the cost of equity occurs when risk information is divided into financial and non-financial risks.
Keywords: Madrid / market / disclosure / Bayesian / Cost of Equity / stock / listed / risk information / Disclosed

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