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.

A sociological theory of corporate finance

2015 ◽  
Vol 9 (3) ◽  
pp. 269-294 ◽  
Author(s):  
Yuanhui Li ◽  
Check Teck Foo
Keyword(s):  
Social Responsibility ◽  
Information Disclosure ◽  
Equity Capital ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Content Type ◽  
Csr Reporting ◽  
The Cost ◽  
Privately Owned

Purpose – The paper aims to investigate the relationship between social responsibility and equity in China. In the process, the authors utilize data on corporate social responsibility (CSR) reports (in particular, information disclosure) and equity capital (focusing on cost). The overarching hypothesis may be phrased simply as: is CSR reporting rewarded by the capital market in China? Design/methodology/approach – The data of 3,012 list corporations in China securities are used and 1,015 CSR report quality scores (Rankins CSR Ratings) are hand-gathered from HEXUN (Web site) and utilized in the process of developing the model; financial and stock market information is obtained from the Wind database and the China Stock Market and Accounting Research database. Findings – The authors’ results suggest that overall the quality of CSR report is strongly, negatively related with the cost of capital: the higher the quality of social responsibility information disclosure, the lower the cost of equity capital. Most intriguingly, the authors find a sharp contrast between the government-owned corporations (state-owned enterprises) and privately owned, listed corporations. The quality of CSR reporting has a much higher impact in lowering the cost of equity capital for privately owned corporations. In contrasting the results for mandatory versus voluntary CSR disclosure, the quality of CSR reporting for the latter does not have any higher impact in lowering the cost of equity. Practical implications – Good social responsibility behavior by corporations and their subsequent information disclosure has beneficial financial impacts. In the authors’ research, the authors showed its immediate impact to be in the lowering of the overall corporate cost of equity. In this regard, the authors would recommend that chief executive officers pay more attention to CSR practice and its disclosure. Private firms issuing CSR reports will benefit from much lower financing costs through the capital market. Originality/value – Due to the structure of capital markets in China, the authors are able to show that CSR reporting of privately owned, listed corporations have much more effective signaling power. On the basis of the authors’ empirical findings in relation to the quality of CSR reporting and its impact on cost of capital, the authors suggest there is greater scope for research which takes a “finance and society” perspective. Based on more extensive research, such a perspective may enable scholars to orientate finance and finance research toward a model of “socio-capitalism”.

scholarly journals Corporate social responsibility disclosure level, external assurance and cost of equity capital

2018 ◽  
Vol 16 (4) ◽  
pp. 694-724 ◽  
Author(s):  
Jessica Lee Weber
Keyword(s):  
Corporate Social Responsibility ◽  
Social Responsibility ◽  
Reference Group ◽  
Equity Capital ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Content Type ◽  
Csr Disclosure ◽  
Corporate Social ◽  
The Cost

PurposeThis study aims to analyze whether corporate social responsibility (CSR) report characteristics, including disclosure level and external assurance, and reporting firms’ CSR performance, explain variation in cost of equity capital among CSR disclosers.Design/methodology/approachThe study uses a propensity score matched sample of CSR reports prepared according to the Global Reporting Initiative’s (GRI) G3/G3.1 Reporting Guidelines.FindingsOverall, there does not appear to be a difference in cost of equity capital among CSR disclosers based on GRI disclosure level. The exception is for poor CSR performers reporting at the highest GRI disclosure levels, but not obtaining assurance. These firms may be suspected of greenwash and therefore have higher cost of equity capital than the reference group. Poor CSR performers, especially those reporting at the highest GRI disclosure levels, obtain the greatest cost of equity capital benefit associated with external assurance.Originality/valueThis study contributes to the literature by showing that the cost of equity capital benefits associated with CSR disclosure and assurance do not accrue equally to all CSR disclosers. Specifically, this study is the first to provide empirical evidence of the cost of equity capital consequences of suspected greenwashing and empirically demonstrate the role of external assurance in mitigating greenwashing concerns among poor performers.

scholarly journals Information Asymmetry, Ownership Structure and Cost of Equity Capital: The Formation for Open Innovation

2021 ◽  
Vol 7 (1) ◽  
pp. 48
Author(s):  
Ade Imam Muslim ◽  
Doddy Setiawan
Keyword(s):  
Stock Market ◽  
Information Asymmetry ◽  
Ownership Structure ◽  
Trading Volume ◽  
Foreign Ownership ◽  
Equity Capital ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Ownership Structures ◽  
The Cost

Our study aims to investigate how information asymmetry and ownership structure affect cost of equity capital. For that purpose, we collected 246 issuers over 4 years for a total of 984 observations. By using panel data processing, we found that the information asymmetry we proxied through Price non-Synchronization and trading volume had an effect on the cost of equity capital. Our results also confirmed both Agency Theory and Pecking Order Theory. Both theories are in line with the conditions of the stock market in Indonesia. In addition, we found that institutional and foreign ownership structures also had an effect on the cost of equity capital. Furthermore, our results also confirmed Interest Alignment Theory and Entrenchment Theory. Our research is expected to contribute to the debate on the existence of information asymmetry and ownership structures in relation to the cost of equity capital. We also hope that it will be a valuable input for investors in considering their investment. Moreover, from the results of this study, investors can also consider foreign ownership or institutional ownership in determining their investment. In addition, stock market regulators in Indonesia can develop approaches to minimize information asymmetry and encourage foreign investors to invest in Indonesia.

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