The Effect of Earnings Transparency on Equity Cost of Capital

Transparent financial information has got a more important role during recent year. Low transparency and low quality in financial information face investment with opacity. In this situation premium risk increases and from the view point of users, if financial reporting has a low quality, information risk Is high. most of the stockholders need transparent information about firm’s performance. Complete disclosure with transparency in financial reporting lead to certainty and increase trust in investment. If financial reporting is transparent equity cost of capital will decreas. Therefore, we investigate the effect of earnings transparency on equity cost of capital for 90 firms in Tehran Stock Exchange from 2004 -2009. The result shows that there is a significant and negative relation between earnings transparency and equity cost of capital.