The influence of investor relations in financial companies on the cost of capital: The case study of European countries

Abstract

The research is aimed at proving the necessity of proactive IR for financial companies through the influence of IR on the cost of their capital. Due to the two-fold role of financial companies – as market players themselves and as financial intermediaries – they exercise great influence on information asymmetry across the market. The study shows how, by means of reducing information asymmetry, information disclosure improves the cost of financing the company’s capital. The objective of the study is to first to explore the peculiarities of IR in financial companies and its consequences for their performance through information disclosure reducing information asymmetry; second, to prove the need for IR in those firms through primary research on a sample of listed European companies from financial sector. The research has successfully demonstrated that through proactive IR policy, reflected in membership in an IR association, a financial company can significantly improve its trust among the investing public, which is directly reflected in lower cost of capital. The results of this study give a significant incentive for top management of financial industry to adopt a proactive IR policy in order to satisfy their clients’ need in terms of timely and quality information delivery about the company’s activities.