Exploring the Mediating Role of Information Asymmetry in the Relationship between Voluntary Information Disclosure and the Equity Cost of Capital: An Analysis Using the CAPM Model

The lack of reliable information disclosure contributes to information asymmetry, which in turn raises the equity cost of capital. Voluntary information disclosure can mitigate unsystematic risk and this reduction can enhance investor confidence through financial signaling. When investors perceive a company as more resilient to specific market fluctuations, the company’s beta—a measure of systematic risk—tends to decrease. This shift in risk perception can ultimately lower the equity cost of capital. Furthermore, when a company improves the quality of its disclosures, it not only affects its own valuation, but can also influence the broader market. In this sense, the disclosure practices of one company can shape public perception and impact the risk assessments of other companies as well. This study explored the mediating role of information asymmetry in the relationship between voluntary information disclosure and the equity cost of capital, utilizing the Capital Asset Pricing Model (CAPM). To achieve the research objectives, a sample of 159 companies listed on the Tehran Stock Exchange (TSE) from 2018 to 2023 was selected. Panel data analysis and multivariate linear regression were employed to test the hypotheses. The findings indicated that voluntary information disclosure did not significantly affect the equity cost of capital. Moreover, the mediating variable of information asymmetry also did not significantly influence the relationship between voluntary information disclosure and the equity cost of capital. This lack of significance might be attributed to the generally low level of voluntary disclosure, inefficiencies within the Iranian capital market, and the limited scope of disclosed information. Additionally, the absence of financial analysts and insufficient investor attention had hindered voluntary disclosures from effectively reducing information asymmetry in the capital market.