The impact of corporate digital transformation on shareholder decisions from the perspective of the cost of equity capital: The interactive role of information risk, operational risk, and agency problems

Document Type : Original Article

Author

Assistant Professor, Department of Accounting, Shahr-e-Qods Branch, Islamic Azad University, Shahr-e-Qods, Iran.

Abstract

Objective: In recent years, digital transformation has emerged as one of the most critical and strategic decisions for companies, aimed at fostering the digital economy, enhancing competitiveness, and improving organizational flexibility. However, it remains unclear how stakeholders perceive such transformations. Given that the cost of equity reflects the relationship between risk and return that shareholders consider when investing in a company, while also encompassing their comprehensive assessment of the companys overall performance, the present research aims to investigate how corporate digital transformation influences shareholders’ decisions from the standpoint of equity capital costs. Furthermore, the interactive effects of information risk, operational risk, and agency problems within companies will be examined in this context.
Methods: The method of the present research is applied and employs a post-event approach (utilizing historical data). To test the research hypotheses, multiple linear regression based on panel data was used, leveraging Eviews12 software. The statistical population in this study consists of all companies that were listed on the Tehran Stock Exchange during the period from 2017 to 2023. The research sample includes those companies accepted on the Tehran Stock Exchange that were selected through screening. From the statistical population, only 141 companies met all the specified criteria over the full 7-year period, and thus, they were utilized as the sample in the current study.
Results: Following the conducted analyses, it was determined that digital transformation is significantly associated with lower capital costs in publicly traded companies. In fact, the results of the first hypothesis indicate that the negative coefficient of corporate digital transformation leads to a substantial reduction in the cost of equity. Additionally, the results of the second hypothesis show that as information risk increases, companies experience even greater reductions in the cost of equity. Furthermore, based on the results of the third hypothesis, the negative impact of digital transformation on the cost of equity becomes more pronounced with rising operational risk. Finally, the results of the fourth hypothesis reveal that companies with more severe agency problems will experience greater reductions in the cost of equity.
Conclusion: The findings of this research contribute to studies on the economic impacts of digital transformation. The results demonstrate that digital transformation can substantially lower the cost of equity capital, thereby enriching the existing body of research on the factors that determine the cost of equity capital. Overall, the findings indicate that an organizations digital transformation is a critical consideration in shareholders decision-making processes.
Innovation: Sanctions and economic instabilities in Iran have imposed significant limitations on companies’ access to financing and investment, which in turn exert a negative impact on the cost of equity. Ultimately, a comprehensive understanding of the effects of digital transformation on the cost of equity in the Iranian capital market, along with existing gaps, can aid in identifying opportunities and challenges. Recognizing this issue is crucial not only for companies and investors but also for policymakers, enabling them to implement appropriate policies that facilitate this transformation and reduce associated costs. In conclusion, based on the findings from this research, it is recommended that investors focus on companies where digital innovation is present, as these companies experience a reduction in the cost of equity capital. Research into the impact of digital transformation on the cost of equity is an important and challenging topic. In fact, by employing innovative approaches and leveraging new data, researchers can obtain valuable insights.

Keywords

References

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Journal of Finance and Corporate Sustainability
Volume 1, Issue 1 - Serial Number 1
August 2025
Pages 153-181

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History

  • Receive Date: 02 May 2025
  • Revise Date: 13 May 2025
  • Accept Date: 16 August 2025
  • First Publish Date: 23 August 2025
  • Publish Date: 23 August 2025

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