Value relevance of digitalization: The moderating role of corporate sustainability. An empirical study of Italian listed companies

The purpose of this paper is to assess whether a relation exists between stock market valuation and the extent to which Italian listed companies disclose information on their digitalization initiatives. The authors posit that the disclosure of digitalization-related information is a form of intellectual capital disclosure, which provides potentially value-relevant information to investors. Additionally, it is assumed that the reputation for corporate sustainability affects the relation between digitalization disclosure and stock market valuation. To test the aforementioned hypotheses, the authors first quantified the extent of digitalization disclosure by content-analysing the annual reports of 75 Italian listed companies for the years 2011–2017, and then they examined the value relevance of digitalization-related information accounting for the role of corporate sustainability. Empirical results suggest 1) that stock market participants incorporate digitalization-related information into their business valuation process, and 2) that firms with better reputation for corporate sustainability achieve higher valuations from disclosing their digitalization efforts. The potential contribution of this study is manifold: first, it extends prior research on the value relevance of IC disclosure by broadening its scope to include digitalization-related disclosure and evidencing the (moderating) role of corporate sustainability in firm valuation; second, it provides some empirical substance to the discussion on how to measure the value a company extracts from digitalization efforts; and third, it may support the case for increased non-financial disclosure as called for by accounting regulators and standard setters.