Which Corporate Social Responsibility Performance Affects the Cost of Equity? Evidence from Korea

Youngkyung Ok and Jungmu Kim
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Youngkyung Ok: DGB Research Institute, 111, Oksan-ro, Buk-gu, Daegu 41593, Korea
Jungmu Kim: School of Business, Yeungnam University, 280 Daehak-Ro, Gyeongsan, Gyeongbuk 38541, Korea

Sustainability, 2019, vol. 11, issue 10, 1-14

Abstract: This study analyzes the effect of corporate social responsibility activities on the cost of equity in Korea. We find that firms with better corporate social responsibility (CSR) performance generally exhibit cheaper equity financing. Considering three dimensions of CSR separately, we find that a higher “socially responsible management” significantly reduces the cost of equity by 1.13%-1.37% per annum and “Corporate governance” activity also marginally affects the cost of equity, while “environmental management” has no impact. Our result is robust in controlling for systematic risk, size, leverage ratio, and the number of analysts. These results imply that enhancing socially responsible management and corporate governance can increase firm value in Korea, but environmental management is not relevant for firm values. Putting differently, investors tolerate a lower return from firms with more CSR activities, because they expect them to provide sustainable incomes. Future researches can extend our approach to examining the effect on the cost of debt and cost of capital.

Keywords: cost of equity; CSR; ESG; sustainability; firm value (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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