This study examines the effect of mandatory disclosure on cost of equity capital. The level of disclosure is identified by comparison of annual reports of sampled firms having year end 29/12/1379, with the requirement of Iranian Accounting Standards which became compulsory by 1/1/1378, company’s law, Tehran stock exchange regulations and Iranian Tax law. The cost of equity capital is calculated using the capital asset pricing model according to Dimson’s approach. The sample of this study consists of companies listed on Tehran stock exchange which are not engaged on agriculture, mining and oil activities. Findings indicate that increase in the level of disclosure is associated with the decrease in cost of equity. In other words investors are willing to invest in companies that disclose more and as the result have lower risk.