One of the key decisions a firm has to reach is the fundamental determination of its cost of capital. This has a substantial impact on both the composition of the firm’s operations and its profitability, since shocks onto anticipated cash flows are reflected in the firm’s cost of capital. Many studies have spent tons of ink coming up with proposals leading to a lower cost of capital. Accounting information reduces information asymmetries, which lead to adverse selection in transaction activities in the stock market as well as to enhanced liquidity, which lowers the discounts at which firms must issue capital. Argue that accounting information tends to compensate shareholders through stock returns by reducing their exposure to investment risks.