The Impact of Better Corporate Social Responsibility Disclosure on the Cost of Equity Capital

2011 ◽  
Vol 19 (5) ◽  
pp. 253-272 ◽  
Author(s):  
Carmelo Reverte
Keyword(s):  
Corporate Social Responsibility ◽  
Social Responsibility ◽  
Equity Capital ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Corporate Social Responsibility Disclosure ◽  
Corporate Social ◽  
The Cost ◽  
The Impact

scholarly journals Does the provision of voluntary corporate social responsibility disclosure influence the cost of equity capital? Evidence from Australia and the United Kingdom

2011 ◽  
Vol 8 (4) ◽  
pp. 201-213 ◽  
Author(s):  
Qiao Liu ◽  
Charl de Villiers
Keyword(s):  
Corporate Social Responsibility ◽  
Social Responsibility ◽  
Equity Capital ◽  
Global Reporting Initiative ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Corporate Social Responsibility Disclosure ◽  
Alternative Measures ◽  
Corporate Social ◽  
The Cost

The practice of managers of firms making voluntary social disclosures has become widespread. Corporate ownership (shareholders) will be interested to know whether these voluntary social disclosures affect them by influencing the firm’s cost of equity capital. This study investigates the relationship between the voluntary corporate social responsibility disclosure of Australian and UK firms, based on the 2008 KPMG International Survey of Corporate Social Responsibility Reporting and the cost of equity capital based on the Botosan and Plumlee (2005) model. Using a sample of 59 firms ranked in the top 100 of Australian and UK firms, we find that firms making voluntary corporate social responsibility disclosure in compliance with the Global Reporting Initiative Guidelines are associated with an increased cost of equity capital. Our main results are robust to several alternative measures of voluntary corporate social responsibility disclosure. These results can be attributed to two reasons. Firstly, firms making voluntary corporate social responsibility disclosure provide information that allows certain traders to make judgments about a firm’s performance that are superior to the judgments of other traders. As a result, there may be more information asymmetry amongst traders. Secondly, shareholders consider that the information production and proprietary costs associated with voluntary corporate social responsibility disclosure outweighs its potential benefits. Both explanations suggest that investors will impose a higher cost of equity on firms making voluntary corporate social responsibility disclosure. In the additional tests, we show that our main results are robust to alternative measures of voluntary corporate social responsibility disclosure.

Voluntary Nonfinancial Disclosure and the Cost of Equity Capital: The Initiation of Corporate Social Responsibility Reporting

2011 ◽  
Vol 86 (1) ◽  
pp. 59-100 ◽  
Author(s):  
Dan S. Dhaliwal ◽  
Oliver Zhen Li ◽  
Albert Tsang ◽  
Yong George Yang
Keyword(s):  
Corporate Social Responsibility ◽  
Social Responsibility ◽  
Voluntary Disclosure ◽  
Equity Capital ◽  
Forecast Errors ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Csr Disclosure ◽  
Corporate Social ◽  
The Cost

ABSTRACT: We examine a potential benefit associated with the initiation of voluntary disclosure of corporate social responsibility (CSR) activities: a reduction in firms’ cost of equity capital. We find that firms with a high cost of equity capital in the previous year tend to initiate disclosure of CSR activities in the current year and that initiating firms with superior social responsibility performance enjoy a subsequent reduction in the cost of equity capital. Further, initiating firms with superior social responsibility performance attract dedicated institutional investors and analyst coverage. Moreover, these analysts achieve lower absolute forecast errors and dispersion. Finally, we find that firms exploit the benefit of a lower cost of equity capital associated with the initiation of CSR disclosure. Initiating firms are more likely than non-initiating firms to raise equity capital following the initiations; among firms raising equity capital, initiating firms raise a significantly larger amount than do non-initiating firms.

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