Mediators Linking Information Quality and the Cost of Equity Capital*

초록

This study investigates the mechanisms underlying the relationship between accounting information quality and the cost of equity capital. Information quality is negatively correlated with the cost of equity capital, with the relationship possibly driven by mediators linking the two variables. The empirical results indicate that about 42% of the total effects of information quality on the cost of equity capital is attributable to the indirect effects mediated by information asymmetry, market risk, and liquidity risk in that order, although the relative magnitude of the mediation depends on which mediator is considered first in the model. This study is the first to examine the mediating effect of liquidity risk using path analysis. Furthermore, no previous study has examined and compared the relative impact of the three mediators. In particular, liquidity risk mediates the relationship between information quality and the cost of equity capital, and the mediating effect of liquidity risk is almost as significant as information asymmetry and market risk with a marginal difference when considered individually.

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