臺大管理論叢 NTU Management Review VOL.30 NO.2

263 NTU Management Review Vol. 30 No. 2 Aug. 2020 2.2 Accounting Information and Firm Risk Accounting information is related to cost of capital, as found in studies by Daske (2006), Kim and Shi (2011), etc. However, appropriate estimates of cost of equity capital are difficult to obtain, and because these estimates either provide no relevant information or have no relationship to market beta, prior research adopts indirect estimates of cost of equity capital (Botosan, 1997). One type is a firm’s estimated market beta from the CAPM. Therefore, there is ample evidence on the linkages between accounting information and risk. For example, Beaver, Kettler, and Scholes (1970) examine the relationship between accounting and market determined risk measures. They use dividend payout, growth, leverage, liquidity, asset size, variability of earnings, and covariability of earnings to construct the accounting risk measure (accounting beta), and use market beta as the market risk measure. The evidence suggests that there is a contemporaneous relationship between accounting and market risk measures, which implies that accounting data do reflect some events which give rise to securities risk and are also reflected in the market price. Lambert et al . (2007) define cost of capital to be the expected return on the firm’s stock and build a model consistent with the CAPM in which accounting information can influence the cost of capital. Furthermore, this demonstrates that the quality of accounting information can directly affect a firm’s assessed covariances with the cash flows of other firms and, therefore, affect firm beta. Other research, such as the studies by Core, Guay, and Verdi (2008) and Francis, LaFond, Olsson, and Schipper (2005), also empirically analyze the relationship between accounting information and the beta of a firm. 2.3 Accounting Information and Stock Liquidity According to CAPM, the required return on an asset increases with the covariance between the asset’s return and the market return. The market beta (market risk) is the sensitivity of stock returns to unexpected changes in market returns. To consider the illiquidity cost, Acharya and Pedersen (2005) derive a liquidity-adjusted version of CAPM and suggest that the expected return of a stock is affected by market risk, liquidity risk, and commonality in liquidity. Therefore, three liquidity risk factors are added to extend the standard CAPM. Given that accounting information is related to market risk, it also can affect stock liquidity because it can affect the information environment of the stock (Sadka, 2011),