Does corporate social responsibility affect the cost of capital?

Sadok El Ghoul, Omrane Guedhami, Chuck C.Y. Kwok and Dev Mishra ()

Journal of Banking & Finance, 2011, vol. 35, issue 9, 2388-2406

Abstract: We examine the effect of corporate social responsibility (CSR) on the cost of equity capital for a large sample of US firms. Using several approaches to estimate firms' ex ante cost of equity, we find that firms with better CSR scores exhibit cheaper equity financing. In particular, our findings suggest that investment in improving responsible employee relations, environmental policies, and product strategies contributes substantially to reducing firms' cost of equity. Our results also show that participation in two "sin" industries, namely, tobacco and nuclear power, increases firms' cost of equity. These findings support arguments in the literature that firms with socially responsible practices have higher valuation and lower risk.

Keywords: Stakeholder; theory; Corporate; social; responsibility; Cost; of; equity; capital (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (914)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:35:y:2011:i:9:p:2388-2406

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