Examining the impact of circular economy disclosure on the cost of debt: A signaling theory approach via social media

The growing societal focus on addressing environmental and social issues has spurred a shift towards circular production and consumption models. In this scenario, the implementation of circular economy (CE) practices has attracted the attention of scholars, professionals and institutions. The relevance of the CE has shed light on the importance of communicating efforts and achievements in relation to the implementation of circular models. Therefore, from an academic point of view, several scholars have started to explore some aspects related to CE disclosure (CED). Despite this, a relatively unexplored trend pertains to the effects of the CED, especially regarding the use of social media to disseminate information. In order to fill the gap, this study aims to investigate the effect of the dissemination of CE information via Twitter on the cost of debt. To this end, a dictionary-based content analysis is employed to quantify the amount of CE information disseminated via Twitter. Additionally, a panel regression analysis is conducted to test the impact of the CED on the cost of debt across a sample of 378 observations (an unbalanced panel of 132 firms for the period 2019–2021). The results indicate the presence of a negative relationship between the level of the CED and the cost of debt.