Expecting the unexpected: Voluntary sensitivity risk disclosure and the cost of equity capital

Key Points

• Cost of equity capital decreases when companies voluntarily disclose sensitivity risk information, promoting transparency.
• On average, this disclosure can reduce the cost of equity by 2.7%, enhancing investor confidence in the firm.
• The analysis examines data from various capital markets, focusing on firms that engage in risk disclosure practices.
• Findings suggest that increased transparency may enhance market stability and reduce information asymmetry.