Can online interactions help level the playing field for firms in different regions?

Abstract

PurposeThis paper examines whether technological changes that promote communications between investors and managers help bridge the gap in the cost of equity capital among firms in different regions.Design/methodology/approachWe use the online interaction platforms of listed firms in China and utilize brokerage presence (BP) to capture the geographic distribution of financial factors. We explore whether online interactions would reduce the cost of equity to a greater extent for firms located in low brokerage presence regions (hereafter “low-BP firms”) than those in high brokerage presence regions (hereafter “high-BP firms”).FindingsWe find low-BP firms benefit more from an improved information environment created by online interactions. We also find that posts about low-BP firms are more value-relevant and useful in processing corporate disclosures. Further, a higher number of interactions significantly enhances more informational efficiency for low-BP firms, and the effect of reducing the gap in financing costs is more pronounced when corporate information is complex.Originality/valueWe conclude that online interactions alleviate geography-induced information frictions and create a relatively level playing field for firms located in all regions.