A dissertation submitted in partial fulfillment of the requirement for the degree of Doctor of Philosophy in Business Administration, School of Management

Thesis (Ph.D.) - Asian Institute of Technology, 2013

The focus of this study is to investigate the role of disclosure quality practices as adopted by the listed companies to reduce the cost of equity. Besides this, the research study also examines governance factors that help firm s for adopting quality disclosure policies. In order to test the hypothesis that I develop in this study I use companies listed on the Karachi Stock Exchange for year 2009 and 2010. Currently, 651 companies are listed on the Karachi Stock Exchange. I use board independence, audit committee independence, ownership concentration, CEO duality, audit quality as governance attributes, and firm level attributes that I take are firm size, leverage, and M/B ratio. Besides these firm and governance related attributes I also use the interaction term between CEO duality and ownership concentration to see the combined impact of concentrated power on disclosure quality. In order to test the hypothesis devel op in this study I use the regression analysis. To study the impact of disclosure quality on cost of equity financing for listed firms I use 2SLS regression analysis. The regression results of the OLS show that disclosure quality negatively influences the required returns and when the disclosure quality is first explained by using instrumental variables of CEO duality and ownership concentration disclosure quality appears as significantly reducing the required return. Findings of this study reveal the fact that corporate governance practice as adopted by companies influence their disclosure quality. The most important governance factors that affect disclosure quality include audit quality, CEO duality, audit committee independence and ownership concentrati on. The combined impact of CEO duality and ownership concentration on disclosure quality also proves as a significant influencing factor. Audit committee independence positively influenc es the disclosure quality but with inclusion of board independence, it remains no more significant. Board independence does not influence disclosure quality. Results of this study depict CEO duality as an influential factor that influences the required returns. Audit committee independence is also not help ing the firms in reducing cost of equity, investors are not seemed satisfied with the so - called independence of the audit committee or firms are not fully applying the concept of non - executive directors. Firms having more leverage are suffering from higher cost of equity. Firm{u201F}s size is also related positively with the required return that means that big firms are subject to greater cost of financing. Higher Market to book value ratio is associated with higher cost of financing. Outcomes of this research study are beneficial for investors, top management and policy makers. These findings can help the investors making the investment decisions. Top management can find these findings to overcome the weaknesses of the existing system. Policy makers based on these findings can adopt better policies for making system more transparent and investor friendly.