The cost of the buzz? A sufficiency threshold perspective on digital transformation disclosure and cost of equity capital

Firms disclose information about complex internal activities to keep capital markets informed about their long-term value. We engage two rival predictions, the 'more-is-better' assumption in information risk theory and the 'more-is-noisy' assumption in technological fad perspectives, and ask what shape best characterizes the association between firms' digital transformation (DT) disclosure and the cost of equity capital. Using FTSE350 firms from 2010 to 2020 and adopting a question-driven, phenomenon-based approach, we document a non-linear association in which both traditions describe the same relationship over different ranges of disclosure. Where disclosure is sparse, capital markets cannot separate commitment from fashion and additional disclosure in this range is associated with a higher cost of equity capital; where disclosure becomes substantively informative, the information benefit dominates and the association reverses. The estimated sufficiency threshold, 0.0149% of annual report text, is reached by almost no firm in our sample. Prevailing disclosure practice therefore sits on the ascending portion of the association, while the descending portion is identified from a thin upper tail. The concavity of this relationship is robust to excluding the highest-disclosing firms, to winsorisation, to selection correction, and to leaving out any single firm. We discuss implications for theories of corporate disclosure of complex internal activity and for the design of DT disclosure policy.