Business sustainability performance and cost of equity capital

Anthony C. Ng and Zabihollah Rezaee

Journal of Corporate Finance, 2015, vol. 34, issue C, 128-149

Abstract: Business sustainability has emerged as the theme of the 21st century. We examine whether and how different components of economic sustainability disclosure (ECON), as well as environmental, social, and governance (ESG) dimensions of sustainability performance affect cost of equity, individually and in aggregate. In addition, we investigate whether and how ECON and ESG sustainability interactively affect cost of equity capital. Costs of equity are calculated using industry adjusted earnings–price ratios and finite horizon expected return model. Using a sample of more than 3000 firms during 1990–2013, we find that ECON (ESG) is negatively associated with cost of equity, but only growth and research (environmental and governance) sustainability performance dimensions contribute to this relationship. Operation efficiency is positively, while social sustainability performance is only marginally, related to cost of equity. We also find that ECON and ESG sustainability performance interactively affect cost of equity. In general, the relationship between ECON (ESG) and cost of capital is strengthened when ESG (ECON) performance is strong.

Keywords: Sustainability performance; Cost of equity; Financial sustainability; Corporate governance; Corporate social responsibility; Environmental initiatives (search for similar items in EconPapers)
JEL-codes: G32 G38 M40 M41 M42 M48 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (152)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0929119915000930
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:34:y:2015:i:c:p:128-149

DOI: 10.1016/j.jcorpfin.2015.08.003

Access Statistics for this article

Journal of Corporate Finance is currently edited by A. Poulsen and J. Netter

More articles in Journal of Corporate Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().