Impact of information risk and cost of equity: moderating role of investor attention

Purpose The purpose of this study is to finds out how investor attention plays the moderating role between the relation of information risk and COE by considering the effect of three different types of information risk, that is private information, lack of quality and transparent information. Design/methodology/approach For that purpose, data is collected from all the non-financial firms listed on PSX from 2007 to 2019. Two-step system GMM dynamic panel estimators are applied to test the dynamic nature of the proposed model. Findings The findings of the study show that investor attention reduces these three information risks by increasing the stock liquidity and decreasing the crash risk which ultimately decreases the COE. Also, this study examined the role of investor attention between the relations of information risk and corporate investment in the dynamic panel model, where the two-step system generalized method of the moment has been applied. The finding of the study shows that investor attention stimulates the innovative investment by increasing investor confidence and decreasing the agency conflict. Originality/value This study contributes to the literature by providing the novel findings by considering the role of investor attention in reducing the effect of three different types of information risk, that is private information, less quality as well as less transparency of information and further their effect on the cost of equity.