Corporate Voluntary Disclosure and Cost of Equity in an Emerging Country: Evidence from Indonesia

This study aims to examine the impact of voluntary disclosure on cost of equity of Indonesian firms. Using a sample of LQ45 listed firms in the period 2010–2011; we find that increasing voluntary disclosure reduces firms’ cost of equity capital. The result persists even after we control with other common variables influencing cost of equity. This result supports findings from prior research in emerging countries. Thus, it could be conjectured that, regardless of the efficiency of the financial reporting environment, voluntary disclosure does reduce information asymmetry, which leads to lower cost of equity. Further analysis shows that based on voluntary disclosure categorization by Botosan only a firm’s background information significantly reduces the firm’s cost of equity, while other voluntary disclosures appear to be unrelated to cost of equity. The result is explained by institutional theory.