Integrated reporting quality and the cost of capital: evidence from the financial sector

Purpose This paper explores the relationship between integrated reporting quality (IRQ) and the main components of the cost of capital, namely the cost of equity and the cost of debt, in the financial sector. Design/methodology/approach An international financial sample, consisting of 1,273 firms and totaling 10,076 firm-year observations from 35 countries worldwide during the period from 2002 to 2022, is analyzed using fixed-effects models. Also, various robustness checks, alternative variable measurements and model specifications are employed. Findings The findings reveal that, overall, IRQ is negatively associated with the main components of the cost of capital, suggesting that financial firms with higher IRQ exhibit cost savings. Industry analysis indicates that firms in banking, financial services and insurance benefit from improvements in IRQ. Originality/value To the best of the authors’ knowledge, this is the first study that investigates the association between IRQ and the components of the cost of capital in financial firms, providing novel evidence from an international sample. Additionally, it makes an important and significant contribution to the literature and provides valuable insights for stakeholders and market participants.