Disclosure Level, Corporate Governance and the Cost of Equity Capital

The research investigates how disclosure level and corporate governance influence on the cost of equity capital in Russia. The research contains the hypothesis that greater disclosure and better corporate governance lowers the cost of equity capital. Disclosure level was measured by the rating of transparency made by Russian Regional Integrated Reporting Network. Corporate governance quality was measured by the rating done by Arsagera. To test the hypotheses, 4 models were built, including a different set of factors, which include both traditional risk measures (beta coefficient, company size and M/ B ratio), and variables characterizing the disclosure level and the quality of corporate governance. The results of the econometric analysis confirmed the assumption that a higher level of disclosure and better corporate governance contribute to a decrease in the cost of equity. Moreover, the model that includes all the parameters studied has the highest explanatory power and is recommended to be used for estimating the cost of equity in emerging markets.