Our aim is to examine the reduction of the cost-of-capital in non-listed companies (SME’s) through exercising a high level of corporate accounting transparency. We see a tendency towards greater stakeholder inclusivity, reflecting a shift away from the dominance of agency theory frameworks and towards a more stakeholder-oriented framework, i.e. that companies have responsibilities to all the different stakeholders. Management control over critical information complicates the stakeholder/agency problem, and makes it difficult for stakeholders to identify if management is acting in their interests. Transparency could be a means to make the stakeholders confident by reducing the information asymmetry risk between management and stakeholders, and hereby reduce the stakeholder perceived risk leading to reduced cost-of-capital towards suppliers, banks, etc. The material used is a randomly selected sample of 385 Danish annual financial reports (official paper-version). The proxies for transparency involve management commentary , accounting notes, number of text units in management commentary, use of numbers in management commentary and description of accounting practice. Our findings support corporate transparency as a positive mechanism since the cost-of-capital items seems (highly) related to corporate transparency. This contributes to a better understanding of the circumstantial relationship between good corporate transparency and lower cost-of-capital among non-listed companies.
Corporate Governance; Corporate Transparency; Small and Medium-sized Enterprises; non-listed companies
Main Research Area:
34th Annual Congress of the European Accounting Association, 2011