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

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.