The Impact of Internet Investor Relations on the Cost of Capital: Evidence from Companies Listed on the Johannesburg Stock Exchange

Abstract

Given the voluntary nature of internet investor relations (IIR), the decision to engage can be viewed in terms of a cost–benefit framework. This study aims to investigate one potential benefit of IIR: a reduction in the cost of capital (measured as the weighted average cost of equity and cost of debt). Contrary to the majority of related studies to date that have used either an indirect proxy or examined the annual report, this study entails a content analysis of corporate websites using a comprehensive measurement instrument. IIR is found to be significantly and negatively related to the cost of debt. Although the level of IIR is also found to be significantly and negatively related to the cost of equity, this association only prevails after an adjustment is made to the cost of equity of smaller companies. Finally, the level of IIR is found to be significantly and negatively related to the cost of capital, both before and after an adjustment to the cost of equity of smaller companies is made. Although the current study deals with Johannesburg Stock Exchange data, the problem investigated is universal in nature and according to our knowledge, this is the first study to comprehensively examine the impact of IIR on the cost of capital.

Strategic stakeholder management: investor relations in South Africa

“…Dolphin (2003) emphasises the utility of IR for strategic marketing, while Hoffman and Fieseler (2011) interpret the IR function primarily as mediator of news through which a company clarifies its effects on shareholder value when they publish news, making effort to explain how new information made available to the market ties into the overall development of the business. A growing body of empirical research suggests evidence of the beneficial outcomes to shareholder value creation associated with IR (Da Silva Rodrigues and Galdi, 2017; Froidevaux, 2004; Gajewski and Li, 2015; Kirk and Vincent, 2014; Nel et al , 2019; Orens et al , 2010; Vlittis and Charitou, 2012).…”

“…Although ample empirical evidence in developed countries suggests the advantages of implementing a professional investor relations (IR) function in the company (IR) to create shareholder value (Agarwal et al , 2016; Bushee and Milller, 2007; Chang et al , 2008; Kim and Jeon, 2015; Nel et al , 2019), other theoretical lenses seem neglected so far. For example, the extent to which the adoption and growth of professional IR are driven by theories such as institutional isomorphism or legitimisation seems to have received little academic attention to date.…”

Minimum corporate website disclosure levels and information asymmetry: Evidence from Johannesburg Stock Exchange small-cap companies

“…Merton, 1987). Using JSE data and a measurement of voluntary disclosure via corporate websites, Nel, Smit and Brümmer (2019) found a significant negative association between corporate website disclosure and the cost of equity.…”

“…The result was a defined population of 83 companies of which 20 were listed on the AltX and 63 on the main board, 4 as summarised in Table 1. Although a sample was not selected and all members of the defined population were examined (i.e. census research method), noteworthy is studies by Cheng, Courtenay, and Krishnamurti (2006) and Nel et al (2019) that used sample sizes of 23% and 25% respectively.…”

Investor communication channels: the case of e-mail and corporate websites – mutually exclusive or complementary?

“…Survey results documented by Nel and Van der Spuy (2021, p. 440) suggest that larger companies prioritise the IR function relative to smaller companies. Larger companies do not only disclose more information over a wider variety of communication channels because of resource availability (Hoffmann and Aeschlimann, 2017), but also receive better coverage from analysts relative to their smaller counterparts (Nel et al, 2019). The introduction of the Markets in Financial Instrument Directive (MiFID) further intensified the importance of the company as direct information source for smaller companies (Murphy, 2018).…”