CSR and cost of capital: evidence from Japan

Megumi Suto and Hitoshi Takehara

Social Responsibility Journal, 2017, vol. 13, issue 4, 798-816

Abstract: Purpose - This study aims to examine the link between corporate social performance (CSP) and the cost of capital of Japanese firms in 2008-2013, considering the influences of banking relationships and ownership structure. Design/methodology/approach - It examines the relation between CSP and the cost of capital in terms of the cost of debt, cost of equity and weighted average cost of capital, using a composite CSP measure based on stakeholder relationships. A regression model is adopted, controlling for bank dependency, ownership structure and firm-specific attributes. Findings - Institutional ownership influences the CSP–cost of equity relation and reduces the cost of equity, while CSP is perceived by debtors as not information-mitigating for the observed period. For 2008-2010, the relation between CSP and bank dependency increases the cost of debt; however, the positive influence of bank dependency on the cost of debt dilutes during 2010-2013 as the shift to a more market-oriented financial market in Japan occurs. Practical implications - Although bank borrowing is important, especially for small firms, non-financial disclosure makes external financing more flexible. Institutional investors concerned about the non-financial aspects of business, therefore, play an important role in mitigating the information asymmetry that exists in the capital market. Originality/value - This study extends research on the CSP–cost of capital link by considering structural changes in financial systems (e.g. capital market perception of CSP and banks as delegated monitors).

Keywords: Institutional ownership; Corporate social responsibility; Cost of capital; Banking relationship (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:srjpps:srj-10-2016-0170

DOI: 10.1108/SRJ-10-2016-0170

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