The Role of Voluntary Disclosure on Information Asymmetry and Its Impact on the Cost of Capital

This study reviews the literature on the role of voluntary disclosure on information asymmetry and its impact on the cost of capital. Specifically, it explores the recent developments in research related to voluntary disclosure, information asymmetry and cost of capital. The review focuses on information asymmetry in mitigating the relationship between voluntary disclosure and cost of capital. This study reconstructed voluntary disclosure indexes obtained from prior studies by integrating the Global Reporting Initiatives (GRI) guidelines. Focusing on Amman Stock Exchange (ASE), this study offers some insight about information asymmetry as an antecedent of the inefficient market problem and its role to reduce the cost of capital. This study suggests that more voluntary disclosure (including social and environment disclosure) will reduce the cost of capital proxied by Weighted Average Cost of Capital (WACC). However, this reduction is more prominent in an efficient market. Therefore, the integration of information asymmetry context is necessary in an inefficient capital market.