The impact of online reporting quality on the cost of equity capital: Evidence from the UK

Purpose – The purpose of this paper is to investigate the extent to which online corporate reporting (OCR) matters to investors by analysing the association between OCR quality and the cost of equity capital.
Design/methodology/approach – The study is based on the analysis of information disclosed on corporate websites of 270 companies listed on the London stock exchange. The analysis used a new proposed thematic multidimensional index that examines four different dimensions of corporate websites; these dimensions are content richness, presentation, accessibility and language and currency.
Findings – The paper provides evidence that companies with higher quality of OCR tend to have a lower cost of equity capital. The results show also that the impact of OCR quality stems mainly from the quality of the financial information content of corporate websites but not accessibility.
Research limitations/implications – First, it cannot be argued that the proposed OCR index is free of subjectivity. Second, the sample companies are characterised by large market capitalisation, hence affecting the generalisability of the results to smaller companies. Finally, the study used perceptions of only one group of users (professional and private investors) to build the weighted index, which might differ from other user groups such as company employees, auditors and regulators.
Practical implications – The findings of this study support the importance of OCR quality to capital market participants, i.e., investors, and it has a capital market consequence i.e., the cost of equity capital. These findings are useful to managers who are interested in relying more on OCR, and to regulators and standards setters in assessing whether to impose electronic filing requirements similar to the USA and Canada.
Originality/value – First, to the best of our knowledge, this study is the first to examine the association between OCR quality and its components and the cost of equity capital in the UK. Second, this study proposes a new thematic multidimensional index as a comprehensive measure of OCR quality.