While analyzing and planning for the financial needs of a company, you need to consider the cost of capital. An important question in analyzing the cost of capital is whether or not firms receive...

Question: Having read the article, do you think that public disclosure diminishes
information asymmetry within an organization and in the market?
No, I am not in the view that the public disclosure diminishes the information asymmetry within
an organization and in the market. Increased precision in public disclosure has become a need of
the time, a key to survival in the long run. Cases like Enron and Anthon Anderson have always
been questioning the financial reporting standards set up and the requirement if precision in
accounting. Many companies use complicating accounting techniques to cover up their losses or
window dress their revenues and costs. In view of the various assumptions, alternative treatments
prevalent in accounting, the scope for managing earnings by the companies to present a better
view of things is always high. In such circumstances, it becomes imperative for the analyst to not
accept the figures that are shown in the financial statements as it is but to make a thorough
analysis of the methods adopted by the company in computing the figures.
Question: How does this reduction in information asymmetry affect the cost of capital of a
company?
Cost of Capital has a direct relation with the cost of capital of the company. A capital structure is
defined as a mix of permanent long term capital employed by enterprises to run...