Corporate Environmental Responsibility and the Cost of Capital: International Evidence

Sadok El Ghoul, Omrane Guedhami (), Hakkon Kim () and Kwangwoo Park ()
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Omrane Guedhami: University of South Carolina
Hakkon Kim: Southwest Jiaotong University
Kwangwoo Park: Korea Advanced Institute of Science and Technology (KAIST)

Journal of Business Ethics, 2018, vol. 149, issue 2, No 5, 335-361

Abstract: Abstract We examine how corporate environmental responsibility (CER) affects the cost of equity capital for manufacturing firms in 30 countries. Using several approaches to estimate firms’ ex ante equity financing costs, we find in regressions that control for firm-level characteristics as well as industry, year, and country effects that the cost of equity capital is lower when firms have higher CER. This finding is robust to addressing endogeneity through instrumental variables, to using alternative specifications and proxies for the cost of equity capital, and to accounting for noise in analyst forecasts. We conclude that investment in CER reduces firms’ equity financing costs worldwide.

Keywords: Corporate environmental responsibility; Environmental liability risk; Environmental risk management; Cost of equity capital; Firm risk (search for similar items in EconPapers)
JEL-codes: G32 M14 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (147)

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DOI: 10.1007/s10551-015-3005-6

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