Transparency in the digitalization choices and the cost of equity capital

Abstract

Purpose Digitalization is an element capable of improving companies’ financial performance. Despite the relevance of the topic, the financial effects associated with extensive transparency in digitalization choices have rarely been explored in extant literature. This study aims to close this important gap by examining the effect of digitalization-related information on the cost of equity capital. Design/methodology/approach This study uses manual content analysis on a sample of 122 international listed firms to measure the level of transparency in digitalization choices and a regression model to test the effect of this transparency on the cost of equity capital. Findings The results show that broad transparency allows firms to benefit from a lower cost of equity capital. From this perspective, disseminating information about digitalization choices in a signaling theory key represents the signal that companies send to investors. Originality/value This study extends the knowledge about the potential of transparency to facilitate access to finance by examining the effect of another type of information, namely, those relating to digitalization choices, on the cost of equity capital.

Intellectual capital information via Twitter: the effect on firm value

“…, 2015; Salvi et al. , 2020, 2023). They are linked to the ability of corporate information to reduce the cost of equity capital and increase profitability and the expected cash flows (Plumlee et al.…”

“…The literature identifies two main ways in which corporate disclosure affects firm value (Plumlee et al, 2015;Salvi et al, 2020Salvi et al, , 2023. They are linked to the ability of corporate information to reduce the cost of equity capital and increase profitability and the expected cash flows (Plumlee et al, 2015;Salvi et al, 2020Salvi et al, , 2022.…”

“…Regarding the first mechanism, the literature has highlighted several ways in which disclosure can affect the cost of equity capital and, consequently, firm value. Such methods include reducing information asymmetry (Baiman and Verrecchia, 1996;Vitolla et al, 2020b;Salvi et al, 2023), estimating risk (Barry and Brown, 1984), and monitoring costs for investors (Vitolla et al, 2020b). Other possible ways include expanding the investor base and improving investor recognition (Vitolla et al, 2020b).…”

“…Such methods include reducing information asymmetry (Baiman and Verrecchia, 1996; Vitolla et al. , 2020b; Salvi et al. , 2023), estimating risk (Barry and Brown, 1984), and monitoring costs for investors (Vitolla et al.…”