Voluntary Disclosure, Cost of Capital and Performance of Indian Commercial Banks

The relationship between voluntary disclosure, cost of capital and performance of the Indian banks has been examined in this study. The sample of 32 Indian commercial banks has been taken to study this relationship for the observation period of 2013–2014 to 2017–2018. The voluntary disclosure score is calculated by framing an index of 121 items of voluntary information published in the annual reports of Indian banks. The results of panel regression analysis show that there is no significant relationship between voluntary disclosure and cost of capital. Further the results of study also reveal that bank performance does not mediate the relationship between voluntary and cost of capital in case of Indian banking sector, as the results of the interaction term of voluntary disclosure and performance are found to be insignificant. The findings suggest that that voluntary information disclosed in the annual reports of banks is not up to par to guide investors in their investment decisions and to understand the risks. Therefore, it does not influence the cost of capital. This article contributes to the existing literature by exhibiting that benefits of lower cost of capital associated with voluntary disclosure do not hold true for all industries. Additionally, the relationship between voluntary disclosure and performance of the banks is found to be significantly positive in this study. This research will add to the existing literature as no prior study has studied the simultaneous relationship between voluntary disclosure, cost of capital and performance in the context of a developing country. In particular, this study is the first to analyse the simultaneous relationship between voluntary disclosure, cost of capital and performance of banking industry in the context of a developing country by taking the sample from Indian banks.