Corporate Social Responsibility and Cost of Equity Capital: A Global Perspective

Author #1

Authors

Dr. Ming-Long Wang
Professor
College of Management
National Cheng Kung University, Taiwan
011-886-6-275-7575 extension 53424
wangml@mail.ncku.edu.tw

Dr. Zhi-Yuan Feng
College of Management
National Cheng Kung University, Taiwan
886-918-382348
andy_fong0920@msn.com

Dr. Hua-Wei Huang*
Associate Professor
College of Management
National Cheng Kung University, Taiwan
hwawei7@yahoo.com.tw

*corresponding author

Description

This paper investigates how corporate social responsibility (CSR) influences the cost of equity capital from a global perspective. With a sample of 11,055 firm-year observations from 35 countries, the study finds that, in general, firms with better CSR scores are significantly associated with a reduced cost of equity capital in North America, Europe and Africa. In contrast, the results do not continue to hold in Asian countries. Firms in North America and Europe can reduce the cost of equity capital through implementing effective CSR strategies. However, firms with better CSR performance in Asia face more expensive equity financing, which reveals that investor understanding and perception of CSR varies in different continents. Our study has implications for global regulators and policymakers when setting social reporting standards, suggesting that institutional and/or cultural factors affect top management’s social reporting behavior and regional investors’ impressions of CSR value. In particular, Asian regulators should promote public understanding/awareness of CSR information. Additionally, our findings may be informative to international managers and investors when considering CSR as an indicator in their internal governance policies and decision-making processes. Firms should carefully evaluate the risk of CSR investing and its effect on equity financing in different regions.

 
Jul 11th, 3:00 PM Jul 11th, 4:30 PM

Corporate Social Responsibility and Cost of Equity Capital: A Global Perspective

University of Washington Tacoma, Philip Hall

This paper investigates how corporate social responsibility (CSR) influences the cost of equity capital from a global perspective. With a sample of 11,055 firm-year observations from 35 countries, the study finds that, in general, firms with better CSR scores are significantly associated with a reduced cost of equity capital in North America, Europe and Africa. In contrast, the results do not continue to hold in Asian countries. Firms in North America and Europe can reduce the cost of equity capital through implementing effective CSR strategies. However, firms with better CSR performance in Asia face more expensive equity financing, which reveals that investor understanding and perception of CSR varies in different continents. Our study has implications for global regulators and policymakers when setting social reporting standards, suggesting that institutional and/or cultural factors affect top management’s social reporting behavior and regional investors’ impressions of CSR value. In particular, Asian regulators should promote public understanding/awareness of CSR information. Additionally, our findings may be informative to international managers and investors when considering CSR as an indicator in their internal governance policies and decision-making processes. Firms should carefully evaluate the risk of CSR investing and its effect on equity financing in different regions.

http://digitalcommons.tacoma.uw.edu/clsr_academic/2013/pres/2