Critical Thinking

A reported and, the shareholder confidence will increase,

A
large amount of literature have examined on cost of capital and earning
transparency, effects of earning transpareny on cost of capital common stock, earnings
transparency and its relevancy for the cost of debt and cost of equity, Stakeholders, Transparency and Capital Structure, The Effect of Earnings Aggressiveness, Income Smoothing, Earnings
Transparency on Cost of

Equity with
Earnings Informativeness,  ( Mary E.Barth, YanivKonchitchki , WayneR.Landsman, 2013, Farkhondeh Beigi,*, Mohsen Hosseini, Siavash
Qodsi 2015, Eduardo Flores, Joelson
Oliveira Sampaio, 2017, Andres Almazan, Javier Suarez, Sheridan Titman? 2003, Herry
Sunarto, Etty Murwaningsari, Sekar Mayangsari, 2016) out
of Pakistan. while in Pakistan very few studies conducted  on Cost
of Capital – The Effect to the Firm Value and Profitability,  MEASUREMENT OF COST OF CAPITAL FOR FOREIGN
DIRECT INVESTMENT IN PAKISTAN:;) (Muhammad Shadab Abdul
Sattar 2015, ZAHIR SHAH, 2003).

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There
is no any study conducted on “effect of earning transparency on cost of capital
common stock”  Pakistani perspective.

Earning Transparency of the companies in recent
years has become increasingly important, and nowadays

financial reporting transparency is one of
the most important financial issues , Francis et al. (2005) stated that the lack of Earning Transparency reported creates
the information risk, as a result, investors will demand a higher risk premium,
and consequently, the cost of capital common stock increases, and vice versa,
with increasing more clear and unambiguous earnings reported and, the shareholder
confidence will increase, and the expected rate of

return for shareholders and consequently the cost
of capital common stock will reduce. Thus, by reducing the quality of
accounting information and earning, information risk of the company increases,
and it increases the expected return to shareholders, and thus, the capital
cost will rise.

Earnings quality can have consequences, such
as increasing the efficiency of investment, the ability to predict future
returns. Investors want to earn more earning, and reduce the risk of their
investments. For this reason they are attempting to form portfolios, so they
reduce risk by diversifying investments, or obtain maximum efficiency for a certain
level of risk. The optimal portfolio selection needs assessment of both risk
premium and portfolios return factors. Over the years, various models have been
proposed to assess risk premium and portfolio return. The

different models have been evaluated, and the
results indicate that the factors considered in these  models alone can’t explain the relationship
between risk premium and portfolio return. For this reason, the idea of
combining these factors came together. For this reason, the idea of combining
these factors was proposed. Therefore, in this study, the relationship between
earnings transparency and cost of capital common stock will be investigate by
Fama and French model and taking into account the momentum factor of the firms
listed in the Pakistan Stock Exchange.

Therefore, the main question of the research
is as follows:

Will earning transparency, momentum and Fama
and French model variables affect the cost of capital common stock ?

x

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