The impact of financial instruments disclosures on the cost of equity capital

Purpose: We investigate the impact of financial instrument disclosures under the International Financial Reporting Standard (IFRS) 7 on the cost of equity capital.

Methodology: The sample consists of 56 banks listed in the GCC stock markets over seven years from 2011 to 2017. A self-constructed index is used to measure the compliance level in addition to quantitative methods and panel data regression adopted to test the research hypotheses.

Findings: We find that the compliance level with IFRS 7 does not improve between 2011 and 2017 in the GCC banks. We also find that compliance with IFRS 7 disclosures reduces the cost of equity capital.

Originality: We provide new empirical evidence that the level of mandatory financial instruments disclosures under IFRS 7 reduces the cost of equity capital. Our findings offer policy implications and demonstrate that compliance with IFRS 7 disclosure requirements leads to desirable economic consequences.