Abnormal Innovation Disclosure and the Cost of Equity Financing: Unpacking the Sentiment-Driven Mechanism and Asymmetric External Governance

Abnormal innovation disclosure may reflect both genuine signaling and opportunistic impression management, yet its capital-market consequences remain debated. Drawing on innovation-related textual data of Chinese A-share-listed firms from 2014 to 2024, this study examines the sentiment-driven mechanism linking abnormal disclosure to the cost of equity financing through a behavioral finance lens. Results indicate that abnormal innovation disclosure is significantly associated with lower financing costs, and that investor sentiment partially mediates this association—a pattern more consistent with affective heuristics than with genuine information signaling. Furthermore, this transmission mechanism is subject to the asymmetric moderating roles of the external information environment: analyst coverage amplifies whereas media attention attenuates the sentiment-cost path. Heterogeneity analyses reveal that the financing association is more pronounced for smaller firms and firms in high-tech or highly competitive industries, while the ownership contrast is statistically insignificant. These findings extend the disclosure-cost-of-capital literature beyond the rational information-asymmetry framework, suggest that sentiment-driven mispricing can distort capital allocation at the market level, and support truthful, verifiable disclosure and targeted regulatory monitoring as the basis for market integrity.