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The Effect of Sustainability Information Disclosure on the Cost of Equity Capital: An Empirical Analysis Based on Gartner Top 50 Supply Chain Rankings

Author

Listed:
  • Lingyu Li

    (Department of Information Systems, Virginia Commonwealth University, Richmond, VA 23284, USA)

  • Xianrong Zheng

    (Information Technology & Decision Sciences Department, Old Dominion University, Norfolk, VA 23529, USA)

  • Shuxi Wang

    (Department of Artificial Intelligence, University of International Business and Economics, Beijing 100029, China)

Abstract

While disclosing financial information has been widely proved to reduce the financing cost of a company, the impact of non-financial information, such as sustainability information, disclosing on the financing cost of the company is still in debate. The goal of this paper is to explore the impact of disclosing sustainability-related information on the cost of equity for firms. The paper first introduces the concept of sustainability information disclosure, and then exhibits its benefit through exploring its impact on reducing a firm’s financing cost. It uses the Gartner supply chain top 50 rankings to construct the experiment environment to test for the effect of sustainability information disclosure on the cost of equity capital. The study uses the Gartner top 50 supply chain rankings from 2013 to 2017 to construct the experiment environment, and test for the sustainability information disclosure’s impact on reducing the cost of equity capital. The regressions, which are based on the 350 firm-year sample of the United States and the 604 global firm-year sample, indicate that sustainability information disclosure significantly reduced the cost of equity capital. This paper uses a fixed effect regression method to analyze the impact of sustainability information disclosure. According to the regression result, the sustainability information disclosure variable has a significant negative coefficient. The result is robust under many settings. Thus, the paper finds that sustainability information disclosure significantly diminishes the cost of equity capital, controlling for ESG information disclosure. It also discusses the implications of the findings and future research directions for sustainability information disclosure.

Suggested Citation

  • Lingyu Li & Xianrong Zheng & Shuxi Wang, 2023. "The Effect of Sustainability Information Disclosure on the Cost of Equity Capital: An Empirical Analysis Based on Gartner Top 50 Supply Chain Rankings," JRFM, MDPI, vol. 16(8), pages 1-18, July.
    • Handle: RePEc:gam:jjrfmx:v:16:y:2023:i:8:p:358-:d:1207578
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    References listed on IDEAS

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    1. Christine A. Botosan & Marlene A. Plumlee, 2002. "A Re‐examination of Disclosure Level and the Expected Cost of Equity Capital," Journal of Accounting Research, Wiley Blackwell, vol. 40(1), pages 21-40, March.
    2. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
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    Cited by:

    1. Svetlozar (Zari) Rachev & W. Brent Lindquist, 2023. "Editorial on the Volume “ESG Investing and ESG Finance”," JRFM, MDPI, vol. 16(10), pages 1-2, September.

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