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.

Citation

Salvi, A., Petruzzella, F., Raimo, N. and Vitolla, F. (2023), "Transparency in the digitalization choices and the cost of equity capital", Qualitative Research in Financial Markets, Vol. 15 No. 4, pp. 630-646. https://doi.org/10.1108/QRFM-02-2022-0015