Text-mining analysis of risk management information and the cost of capital: Insights from European tourism firms

This study employs a text-mining analysis to generate data-driven insights on how the communication of risk management information impacts the cost of capital in tourism firms across 22 European countries. To construct risk management information, our paper relies on a lexicon-based model to extract and quantify firm-level risk management information from annual reports. Our empirical analysis, using a Generalized Method of Moments (GMM) approach, indicates that greater transparency in risk management is significantly linked to a reduced cost of capital, suggesting that information transparency enhances investors’ risk assessment and reduces financing costs. We also explored how this relationship manifested during the COVID-19 pandemic, given that firms may have varied their risk management information. Our results indicate that firms providing more extensive and consistent risk management information maintained a comparatively lower cost of capital, highlighting the informational value of risk communication under uncertainty. Our findings demonstrate that text-based analytics provide reliable insights into how information conveyed through corporate reports influences financial decision-making.