Earnings quality and cost of equity capital: evidence from Tunisia

This article identifies the relation between earnings quality and the cost of equity capital of Tunisian listed firms. Using the Fama and French's (1993) model, we find that there is a statistically significant relationship between our proxies of earnings quality and cost of equity capital. This result supports theoretical models predicting that investors are interested in information that reflects correctly the firm's financial situation. The absence of information asymmetry encourages them to diversify their portfolio, reducing by that the cost of equity capital.