Information Asymmetry, Cost of Capital and Disclosure Quality

Information asymmetry occurs when the interest of one party exceeds the others. Investors generally seek to invest in companies with the lower information asymmetry and higher disclosure quality. Undoubtedly, when the gap of interests between institutional shareholders and the other stakeholders is low, the information will be fairly disclosed. Information asymmetry and disclosure quality plays the important role in investment decisions. The purpose of this research is to investigate the relationship between information asymmetry, cost of capital and disclosure quality, using analytical study. In doing so, the financial information of 107 listed companies in Tehran Stock Exchange during the period of 2010-2015 has been investigated. The results show that there is a meaningful and direct relationship between the information asymmetry and cost of capital. Also, we conclude that the relationship between the disclosure quality and cost of capital is meaningful and reverse.