Property crime, earnings variability, and the cost of capital

- We examine how the risk of property theft-related losses affects firms' earnings variability and financing costs.
- We capture the risk of property theft with state-level property crime rates.
- Greater risk of theft is correlated with more volatile and less persistent earnings.
- Greater risk of theft is associated with lower quality analysts' earnings forecasts.
- Firms exposed to a greater risk of theft have a higher cost of equity and debt capital.

We show that firms located in states where property crime is more prevalent have more uncertain earnings and higher financing costs. Specifically, firms located in states with higher property crime rates have more volatile and less persistent earnings as well as lower quality analysts' earnings forecasts. Firms located in states with higher property crime rates also have a higher cost of equity and debt capital. These results are robust to accounting for econometric and endogeneity concerns in various ways. Overall, our results suggest that a potentially large and overlooked cost of crime is a higher cost of capital.