Consequences of Voluntary Disclosure: Structural Equation Modeling Approach

Low transparency causes information asymmetry, increases risk of information and thus decreases shareholder confidence. Voluntary disclosure with improvement of financial information transparency may raise investor's awareness, increase shareholders confidence and decrease cost of capital. This study investigates that information asymmetry and cost of capital decreases are as consequences of higher level voluntary disclosure. The sample consists of 146 firms listed in Tehran Stock Exchange in the period from 2009 to 2013. Structural equation modeling is used to examine the hypothesis and survey direct effects of improved voluntary disclosure and indirect effects of other variables on the possible consequences. The findings show that voluntary disclosure as an information transparency mechanism reduces shares bid and ask and increases their turnover. Also the voluntary disclosure is one of the reducing factors of the cost of capital. Voluntary disclosure with improving corporate information transparency reduces information risk, investor's return expectations as well as the cost of capital