Priced Firm-Specific Risk and Accounting Information

There is a strand of CAPM based analytical research in accounting that uncovers a little known CAPM corollary, namely that the firm's cost of capital is a joint effect of its payoff risk and payoff mean. The CAPM equilibrium mechanism has the effect that the "numerator" (expected payoff) drives its own "denominator" (discount rate). My paper traces the origins of this finding to Fama and Lintner's original CAPM derivation. Although surprising, the role of the mean, and more generally the payoffs expression of CAPM, has deeply interesting and useful connotations for accounting firm-specific information. I expand on those implications and on how they provide an insightful footing for empirical accounting research