Article

The linkage between CSR and cost of equity: an Indian perspective

July 2020
Sustainability Accounting Management and Policy Journal ahead-of-print(ahead-of-print)

DOI:10.1108/SAMPJ-10-2019-0379

Authors:

Purpose This study aims to explore the relationship between corporate social responsibility (CSR) and the cost of equity (CoE) capital of Indian manufacturing firms. Design/methodology/approach The study is conducted on a sample of 68 manufacturing firms listed on National Stock Exchange of India Limited (NSE) 200, investigated for the period 2013 to 2018. To deal with the issue of endogeneity, the techniques of system generalized method of moments and two-stage least square have been applied. Findings The results suggest that CSR disclosure is positively linked with the CoE in the case of manufacturing firms, signalling that socially responsible firms in India bear a higher CoE. The findings indicate that investors do not treat CSR as a value-augmenting factor. Practical implications Firms should effectuate effective managerial and organizational changes to fulfil their social responsibility instead of window dressing their activities. Regulators in India must work towards more stringent enforcement of the act and make efforts to promote public awareness of CSR. Social implications The integration of CSR activities with the economic operations of the business is imperative. Originality/value To the best of researchers’ knowledge, there is a lack of studies focussing on India, which serves as an ideal setting for the study owing to the latest legislation mandating CSR expenditure. The study focusses on manufacturing firms as these firms are more susceptible to contribute to environmental pollution, exploitation of natural resources and labour concerns.

Sustainability Practices and the Corporate Cost of Equity in Emerging and Developed Markets

Article

Full-text available

Oct 2024

Sustainability practices have been attracting growing interest from firms and society in general. Their adoption generates the expectation of improving firms’ financial performance. However, empirical studies did not reach a consensus on the effects of these practices. This study investigates whether adopting sustainable practices negatively impacts firms’ cost of equity. In addition, it analyzes the moderating effect of the country’s development level on this relationship. We conducted a multilevel regression analysis using data from the Bloomberg, Capital IQ Pro, and World Bank databases covering the period from 2010 to 2022. The sample included 5,638 non-financial firms from developed countries (the United States, Japan, Germany, the United Kingdom, and France) and emerging countries (China, Indonesia, India, South Africa, and Brazil), considering three levels: time, firm, and country. The results revealed a negative relationship between sustainable practices and firms’ cost of equity. Furthermore, firms in developed countries that adopt sustainable practices tend to have a lower cost of equity than those in emerging countries. These findings contribute to the ongoing debate in academic literature and help to reduce investors’ uncertainty when allocating capital to sustainable firms. Finally, the results support regulators in confirming the effectiveness of sustainability-oriented policies.

Corporate Sustainability and Capital Costs: A Panel Evidence from BRICS Countries

Article

Apr 2024

Global sustainability challenges have triggered a sense of accountability in society, culminating in the growing incorporation of sustainability into corporate operations. This article aims to investigate the influence of environmental, social and governance (ESG) disclosure on a company’s cost of financing in emerging markets. Furthermore, the article examines the criticality of separate pillars of ESG in determining the companies’ capital costs using a panel dataset of 192 non-financial companies drawn from the equity indices from the BRICS countries for 10 years, spanning 2011–2020. Pooled Ordinary Least Square and fixed-effect panel regressions are used to test the hypothesised relationships. The robustness of our findings is validated by the application of the System Generalised Methods of Moments approach. The results show that ESG disclosure scores and their individual component scores are positively associated with the cost of equity and weighted average cost of capital. In contrast, there is a negative relationship with the cost of debt. Results demonstrate the apprehensions of equity providers and the reception of debt providers towards the companies’ ESG adoption. The governance pillar has the most significant influence on capital costs. The study enables managers to evaluate the economically ideal capital structure for ESG-compliant enterprises strategically.

Exploring the impact of sustainability disclosure on the cost of equity capital in the hospitality and tourism industry

Article

Jan 2024

Unravelling the intertwined nexus of firm performance, ESG practices, and capital cost in the Chinese business landscape

Article

Full-text available

Sep 2023

Fahd Alduais

This research explores the relationship between a company’s commitment to Environmental, Social, and Governance (ESG) factors and its capital equity cost (COE) in the Chinese market. Using statistical methods like regression analysis, the study aims to uncover how ESG disclosure relates to COE. Key findings reveal that environmental and social disclosures increase capital equity costs, indicating higher costs for companies with strong ESG practices. However, governance disclosures don’t significantly impact COE, suggesting that environmental and social aspects carry more weight in shaping investor perceptions and influencing costs compared to governance. The research also shows that this ESG-COE link is more significant for financially sound companies, indicating greater cost implications for strong performers. The study further demonstrates that strong ESG practices are perceived as lower risk, leading to lower capital equity costs. Chinese firms with high ESG scores tend to have lower capital costs, indicating rising investor appreciation for ESG in the Chinese market. The study’s robustness check supports these findings, reinforcing the growing importance of ESG in investment decisions. This research has implications for companies, investors, and policymakers, stressing the role of ESG in attracting investment and reducing costs. Policymakers can use these insights to encourage improved ESG practices and transparency. Overall, the study underscores ESG’s impact on capital equity costs in China, offering valuable insights for decision-makers and highlighting ESG’s relevance in financial choices.

Exploring the impact of sustainability disclosure on the cost of equity capital in the hospitality and tourism industry

Article

Jan 2023
Int J Manag Financ Account

Environmental, social and governance (ESG) disclosure has gained increasing importance in recent years due to its ability to provide an overview of sustainable business behaviour. However, despite the attention paid by investors and stakeholders to sustainability information, the hospitality and tourism (H&T) industry is not characterised by a propensity towards ESG disclosure. This circumstance may be related to the lack of awareness regarding the benefits associated with a wide dissemination of ESG information, resulting from the limited presence of academic contributions on the topic. This study aims to fill this important gap by analysing the impact of ESG disclosure on the cost of equity capital in the H&T industry. The regression analysis, conducted on a sample of 1,750 firm-year observations from 2010 to 2019, demonstrates the existence of a negative relationship between ESG disclosure and the cost of equity capital.

The nexus between corporate environment, social, and governance performance and cost of capital: evidence from top global tech leaders

Article

Full-text available

Mar 2022
ENVIRON SCI POLLUT R

The nexus between corporate environment, social, and governance (ESG) performance and the consequent financial performance have been extensively explored in the literature. However, little is known whether the investment in ESG endeavors has any implication for the cost of capital of an enterprise. The present study investigates the impact of ESG performance of top global technology leading firms on their cost of capital. Panel data fixed effects and random effects and generalized method of moment (GMM) regression estimation techniques have been applied to ascertain this relationship during a period of eight years (2010–2017). For a deeper insight, we segregate the cost of capital into the cost of equity and cost of debt. The empirical outcomes reveal that ESG performance is positively associated with both measures of the cost of capital i.e., cost of equity and cost of debt. It suggests that socially responsible top global technology leaders bear a higher cost of capital as investors perceive ESG as an additional financial burden and do not treat ESG costs as a value-added factor. Hence, corporate managers shall rationalize investment in ESG undertakings to curtail their cost of capital. Based on these findings, the policy prescriptions are discussed for the concerned stakeholders.

The Effect of Corporate Social Responsibility and the Executive Compensation on Implicit Cost of Equity: Evidence from French ESG Data

Article

Full-text available

Oct 2021

This research aimed to evaluate the effect of corporate social responsibility (CSR) and executive incentive compensation based on the achievement of sustainability goals on the implicit cost of equity. To test the study’s hypotheses, the authors applied linear regressions on panel data using the Thomson Reuters ASSET4 and Thompson Institutional Brokers Earnings Services (I/B/E/S) database of a sample of 154 French ESG firms over the 2015–2020 period. Our results show that CSR activities lower the cost of equity capital; hence, these activities are important to shareholders’ investment and financing decisions. The results have practical implications for investors and other partners interested in the business. Thus, using the implicit cost of equity is a better estimate of shareholder requirements in the context of socially responsible businesses. The results of this work could attract the attention of socially responsible investors and, especially, corporate citizens.

Corporate ethical behavior and the cost of equity capital: evidence from the world’s most ethical companies

Article

Full-text available

Jul 2021

Purpose This paper aims to examine the effect of the corporate ethical approach on the cost of equity capital. This study is conducted on a large international sample on behalf of the world’s most engaged firms from an ethical point of view in 2015. Design/methodology/approach The multivariate linear regression model is used to meet the purpose of this study and research hypotheses are also examined using a sample of 80 of most ethical firms in the world during the year 2015. Moreover, three variables (i.e. business ethics, corporate social responsibility and executive compensation based on the achievement of sustainable development goals) are used to reflect the corporate ethical approach and the implied cost of equity capital is used for estimating the cost of equity. In this regard, equity cost estimation is the most appropriate approach to test the effect of business ethics on the cost of financing firms. Findings Based on a sample of 80 firms emerging as the world’s most ethical firms in 2015, the results revealed that firms with better ethics scores are significantly associated with a reduced cost of equity capital. This paper also demonstrates that the executive incentive pays that are based on the objectives of sustainable development are able to explain different outcomes regarding the relation between corporate ethical behaviors and the cost of equity. These findings support arguments in the literature that firms with socially responsible practices have a higher valuation and lower risk. Originality/value This study provides implications for global regulators and policymakers when setting social reporting standards, suggesting that corporate ethical engagement reduces the cost of equity capital by decreasing the information asymmetry and thereby reducing the firms’ risk. Therefore, the findings may be informative to international managers and investors when considering the effect of business ethics on the firm’s ex-ante cost of equity. In this perspective, the voluntary disclosure of information makes it possible to mitigate the problems of asymmetry of information and conflict of interest between the firm and its main providers of capital, which could reduce the cost of equity.

Responsible and profitable: How does ESG agenda increases company’s evaluation

Article

Jan 2023

This study evaluates the differences in environmental, social, and governance factors (ESG) affecting firm value by examining the rating for aggregate ESG and for each factor separately in developed and developing countries. Innovative industry companies as well as heavy industry companies are taken as examples. The paper demonstrates that the effect of ESG rating on the Tobin coefficient, taken as a proxy variable for firm value, differs across industries in developed and developing countries. Based on the observations of 4 207 firms from 35 countries over the period of 2016–2021, the findings demonstrate that the ESG ratings have a positive effect on firm value in developed countries and in innovative industries; the above-mentioned effects are persistent. It also shows that G score is important for the same groups of companies, however, for the firms registered in developing countries, an E score is sufficient in the short term. The paper concludes that lagged variables have a bigger impact on the results in heavy industries that demonstrate their concentration on internal operations, not on investors’ attention directed at the ESG factors. The findings are significant for scholars, managers and policymakers.

Sustainability engagement in Latin America firms and cost of equity El Compromiso Sostenible de Empresas Latinoamericanas y su relaci on con el Costo de Capital

Article

Full-text available

Mar 2021
ACAD-REV LATINOAM AD

Purpose Corporate social responsibility (CSR) actions are expected to reduce information asymmetries and increase legitimacy among the stakeholders of the company, which consequently should have a positive impact on the financial conditions of the firm. Hence, the objective of this paper is to find empirical evidence on the negative relationship between sustainable behavior and the cost of equity, in the specific context of Latin America. To address this issue, some proxies and moderating variables for sustainability are used in our study. Design/methodology/approach The regression model considers a sample with 252 publicly trading firms and 2,772 firm-year observations, from 2008 to 2018. The generalized method of moments is used to avoid endogeneity problems. Findings The study finds evidence that firms with higher environmental, social and governance activities disclosed by sustainability reports and assured by external providers decrease their cost of equity, especially if they are in an integrated market as MILA. This finding confirms that agency conflicts between firm's management and stakeholders diminish with higher CSR transparency, leading to a lower cost of capital. Originality/value Our research is unique and valuable as, to our knowledge, it is the first study to analyze the impact of sustainable behavior and the cost of equity from companies operating in Latin America.

Systematic literature review and retrospective bibliometric analysis on ESG research

Article

Full-text available

Sep 2024
Int J Prod Perform Manag

Purpose This study aims to holistically present a systematic literature review (SLR) triangulated with bibliometric analysis on environmental, social and governance (ESG) research to synthesize and comprehensively review its evolving journey and emerging research streams. Design/methodology/approach Using R-studio software, this study carried out a retrospective quantitative bibliometric analysis through performance analysis, science mapping and network analysis, covering 261 documents published on ESG research between 2007 and 2022 in Scopus and Web of Science databases. Findings Performance analysis depicts the trends in publications, impactful journals and influential publications, authors and countries, while science mapping incorporates co-words and thematic analysis. Likewise, co-occurrence analysis provided four different clusters, representing ESG research linkage to other management fields along with key insights from co-citation network analysis. Additionally, the theory–context–characteristics–methods (TCCM) framework has provided valuable results in terms of widely and emerging used theories, contexts, characteristics and methodologies in ESG research. Research limitations/implications The findings of this study’s comprehensive bibliometric analysis combined with SLR uncovered a robust roadmap for further investigation in ESG research by identifying the inherent structure and evolution of research themes. This review has not only identified the prevalent gaps in determining priorities for future research but also provides insights which not previously been captured and evaluated on this topic. Originality/value To the best of the author's knowledge, no study presents the TCCM framework in the context of bibliometric analysis of ESG research. Besides, a conceptual framework is developed that illustrates antecedents, mediators, moderators and outcomes of research on ESG practices and provides the concluded key takeaways and recommendations for potential authors intending to publish their research papers on ESG practices.

Corporate ESG Performance and Cost of Debt Capital

Article

Full-text available

Jun 2023

Wenjun Wu

The impact of corporate ESG performance on the cost of debt capital is examined using A-share listed companies in Shanghai and Shenzhen from 2007 to 2021 as the research sample. The empirical results show that ESG performance has a significant negative relationship with the cost of debt capital, i.e., firms can reduce their cost of debt capital by improving ESG performance. It is further found that ESG performance has a stronger effect on reducing the cost of debt capital for non-state-owned enterprises than for state-owned enterprises; ESG performance has a more significant effect on reducing the cost of debt capital for enterprises with high quality of internal control than for enterprises with low quality of internal control; and the effect on reducing the cost of debt capital is better for enterprises with high level of external supervision than for enterprises with low level of external supervision.

The effect of CSR and corporate ethical behavior on implicit cost of equity: the mediating role of integrated reporting quality

Article

May 2024

Purpose-The purpose of this study is to analyze the effect of corporate social responsibility (CSR) practices and corporate ethical behavior on implicit cost of equity (COE) using integrated reporting quality (IRQ) as a mediating variable in European companies belonging to the environmental, social and governance (ESG) index. Design/methodology/approach-The authors use a panel data set of 540 European firms from the ESG index from 2013 to 2022. The data were collected from I/B/E/S and Thomson Reuters ASSET4 database and analyzed using the structural equation model to test hypotheses. Findings-In the instance of ESG European firms, the findings indicate that CSR practices and corporate ethical behavior are negatively related to the COE. From the result of the Sobel test, this study indicated that IRQ has only indirect mediation on the relationship between CSR, ethical behavior of the company and implicit COE. Practical implications-The findings have some policy and practical implications that may help regulators and managers in improving the COE and helping companies envision their future growth opportunities in a context where responsibility, ethics and disclosure are central to corporate valuation. Using the implicit COE is a better estimate of shareholder requirements in the context of ESG companies. Originality/value-This research concentrates on ESG companies since they are more likely to contribute to environmental protection, which attracts responsible investors. Furthermore, the findings may be useful to worldwide managers and investors who use responsible practices as a criterion in their decision-making.

Improving triple bottom line (TBL) performance: analyzing impacts of industry 4.0, lean six sigma and circular supply chain management

Article

Full-text available

Apr 2024
ANN OPER RES

The primary objective of the article is to scrutinize the potential benefits of amalgamating industry 4.0 technologies, lean six sigma practices (LSSP), and circular supply chain management (CSCM) to augment overall performance across economic, environmental, and social dimensions, commonly referred to as the triple bottom line. The research uses survey methodology to collect data from senior-level employees in 224 manufacturing organizations and analyze it using structural equation modeling. Based on the analytical findings, it is evident that Industry 4.0 has a direct and significant impact solely on the economic dimension of triple bottom line performance. The relationship between Industry 4.0 and environmental performance is completely influenced by the implementation of LSSP and CSCM. In terms of social performance, the impact of LSSP appears to be not significant, whereas CSCM acts as a full mediator. Finally, with economic performance, LSSP and CSCM partially mediate between the industry 4.0 deployment and triple bottom line performance. There are some limitations, such as the potential lack of generalizability due to the inclusion of a specific demographic and time frame, for which alternative research strategies, such as longitudinal studies or case-study-based designs, may be more appropriate. Study results may assist senior management in developing a strategic framework to improve their organization's triple bottom line performance, advance its sustainability initiatives, and bolster its market competitiveness. Graphical abstract

Impact of the Environmental, Social, and Governance Rating on the Cost of Capital: Evidence from the S&P 500

Article

Full-text available

Feb 2024

We use the S&P 500 to investigate whether companies with a good ESG score benefit from a lower cost of capital. Using Bloomberg’s financial data and MSCI’s ESG score for 498 companies, we calculated the measures of descriptive statistics, finding that companies with better ESG ratings enjoy both a lower cost of equity and a lower cost of debt. However, their WACC shows no improvement with a higher ESG score. Companies with a poor ESG rating have a lower WACC due to the higher proportion of debt capital, coupled with a higher cost of debt, compared to the cost of equity capital. Calculating the Pearson correlation coefficient, we found a slightly negative linear relationship between the ESG score and the beta factor, and between the ESG score and the cost of debt. No linear relationship was found between the WACC and the ESG score. Finally, linear regression analysis shows a negative and significant effect of the ESG score on the root beta factor. This research indicates that companies with better ESG scores benefit from lower cost of equity and debt. Our results may encourage companies to operate more sustainably to reduce their cost of capital.

Impact of Corporate Action announcement on share prices of Indian Stock Market - An empirical Investigation

Article

Full-text available

Jan 2019

The National Stock Exchange (NSE) of India serves as the framework for this study's investigation of the effect of business activities on stock returns. From January 2018 to December 2022, secondary data from the NSE website and annual reports of 50 sample companies across various industries are collected and analyzed using a descriptive study approach. The study tests four research hypotheses about the effect of business activities on stock returns using statistical methods including regression analysis, correlation analysis, and ANOVA. The findings show that business decisions significantly increase stock returns. The analysis also reveals that different company activities, such as bonus issues, stock splits, dividends, and merger and acquisitions, have different effects on stock returns. For investors, managers, and policymakers in the Indian stock market, the study's conclusions are relevant.

Cost of capital and firm performance of ESG companies: what can we infer from COVID-19 pandemic?

Article

Aug 2023

Tanjung Miranda

Purpose Studies on sustainable finance examine how it is interrelated with economic, social, governance and environmental issues. Using financial data on publicly traded firms in Indonesia, this study aims to explore the interplay between the cost of capital, firm performance and the COVID-19 pandemic. Design/methodology/approach This study uses firm-level data sets of publicly listed firms from 2012 to 2021. The regression analysis reported in the study includes the Driscoll–Kraay estimator, propensity score matching model and fixed-effects regression. Findings The study revealed three significant findings. First, on average, non-environmental, social and governance (ESG) companies’ cost of capital is lower than that of ESG firms. Second, ROE in ESG enterprises is significantly impacted by capital costs. Third, the cost of capital has a negative impact on the market value (Tobin’s q) of non-ESG firms. The study specifically shows that after accounting for the pandemic, ESG firms did not benefit during the troubled COVID-19 crisis after controlling for the pandemic dummy years of 2020 and 2021. These results indicate that the adoption of green or sustainable finance is still in its infancy and that the sector requires more time to establish an enabling environment. Research limitations/implications This study benefits from capital structure and ESG theories. It supports the argument that the debt utilization ratio is still relevant to a company’s value because it affects its financial performance. Moreover, adopting ESG principles helps businesses survive crises. Thus, the analysis confirms the superiority of ESG-based firms. Practical implications This study draws two conclusions. First, the results could be a reference for academics and practitioners to understand the effect of pandemic-related crises on a firm’s capital structure and performance. In terms of survival during a crisis, such as the COVID-19 pandemic, this study demonstrates how firms with strong ESG may perform differently than those without ESG. Second, this study supports the need for an empirical study and examination of the development of sustainable finance in the country while considering setbacks. Social implications The results should be of interest to policymakers who focus on the ESG market and academics conducting ESG-related research on emerging markets. Originality/value This study contributes to the literature by establishing empirical evidence on the relationship between the cost of capital and firm performance of ESG- and non-ESG-rated enterprises in the Indonesian setting while controlling for the impact of the pandemic.

The Effect of Sustainability Information Disclosure on the Cost of Equity Capital: An Empirical Analysis Based on Gartner Top 50 Supply Chain Rankings

Article

Full-text available

Jul 2023

While disclosing financial information has been widely proved to reduce the financing cost of a company, the impact of non-financial information, such as sustainability information, disclosing on the financing cost of the company is still in debate. The goal of this paper is to explore the impact of disclosing sustainability-related information on the cost of equity for firms. The paper first introduces the concept of sustainability information disclosure, and then exhibits its benefit through exploring its impact on reducing a firm’s financing cost. It uses the Gartner supply chain top 50 rankings to construct the experiment environment to test for the effect of sustainability information disclosure on the cost of equity capital. The study uses the Gartner top 50 supply chain rankings from 2013 to 2017 to construct the experiment environment, and test for the sustainability information disclosure’s impact on reducing the cost of equity capital. The regressions, which are based on the 350 firm-year sample of the United States and the 604 global firm-year sample, indicate that sustainability information disclosure significantly reduced the cost of equity capital. This paper uses a fixed effect regression method to analyze the impact of sustainability information disclosure. According to the regression result, the sustainability information disclosure variable has a significant negative coefficient. The result is robust under many settings. Thus, the paper finds that sustainability information disclosure significantly diminishes the cost of equity capital, controlling for ESG information disclosure. It also discusses the implications of the findings and future research directions for sustainability information disclosure.

Unveiling the role of corporate social responsibility on the efficiency of capital investments and their speed of adjustment: Insights from India

Article

Full-text available

Jul 2023
Asia Pac J Manag

Driven by the dynamic corporate social responsibility (CSR) environment, which is encouraging movement from self-regulation to co-regulation, this study empirically investigates the impact of CSR on the efficiency of capital investments of firms in India, given its remarkable legislation that mandates firms surpassing a threshold to invest 2 per cent of their profits in CSR activities. The study is based on firms listed on NSE 500 from the year 2008 to 2019, and the results suggest that CSR significantly improves investment efficiency in the post-mandate regime. There exists an optimal CSR level that instigates an inverse U-shaped relationship. We also investigate the impact of CSR on the speed of adjustment of capital investments towards the target in case of deviations. High-CSR firms are found to adjust swiftly to their targets since such firms tend to deviate less and incur low adjustment costs. Only the governance dimension of CSR seems to affect the firms’ speed of adjustment in the current context. The positive association between CSR and adjustment speed is pronounced only in the post-mandate period. Also, CSR seems to affect the speed of adjustment only when firms are operating above the target.

Exploring sustainability disclosures in family firms: a bibliometric analysis

Article

Full-text available

May 2023

The moderating effect of liquidity on the relationship between sustainability and firms' specifics: Empirical evidence from indian manufacturing sector

Article

Full-text available

Apr 2023

The current study attempts to examine the moderating effect of liquidity on the relationship between firms' specific and sustainability expenses. The study is based on secondary data over a period from 2015 to 2021. The results are estimated using panel data with fixed-effect models. The results indicate that liquidity enhances and strengthens the ability of a company to spend more on environmental, social, and employee compensation sustainability expenses. In the same context, the results reveal that there is an insignificant moderation effect of liquidity with the financial performance of a company, indicating that the liquidity of companies with higher financial performance does not enhance and strength their ability to spend more on sustainability expenses. Further, the extent of liquidity in larger companies affects positively and significantly the level of employee compensation but not environmental and social spending. Finally, the findings show that greater leverage with less liquidity negatively affects the levels of sustainability spending. This study provides a unique contribution to the existing literature by introducing the moderating effect of liquidity on the relationship between firms' specific and sustainability expenditures. It highlights the direct effect of firms' specific determinants and the moderating effect of liquidity on three categories of sustainability expenses which are environmental expenses, social expenses, and employee compensations. Therefore, this research has valuable implications for company managers, financial analysts, policymakers, and other stakeholders.

Green innovation and the cost of equity: Evidence from China

Article

Full-text available

Mar 2023

Purpose This paper aims to examine the association between green innovation and the cost of equity in China. This study relies on the investors’ base perspective and shareholders’ perceived risk perspective to investigate the relation between green innovation and the cost of equity in China. Design/methodology/approach The paper uses firm fixed effects regression for a sample of Chinese public companies for the period 2008–2018. Findings The authors find a negative relationship between green innovation and the cost of equity capital. This negative association is found to be more pronounced for less financially constrained firms, during periods of high economic policy uncertainty, and for firms with a strong internal control environment. Finally, the paper shows that the negative association became more pronounced after the passage of the Environmental Protection Law of China in 2012. The results remain robust to possible endogeneity concerns. Originality/value This study contributes to the green innovation literature by documenting that shareholders favorably view firms implementing green innovation policies. The study also has policy implications for Chinese regulators in improving the green credit policy.

The interrelationship between bank capital and liquidity creation: A non-linear perspective from the Asia-Pacific region

Article

Feb 2023
Int Rev Econ Finance

When do ESG controversies reduce firm value in India?

Article

Full-text available

Feb 2023
Global Finance J

This study investigates whether, when, and how media coverage of environment, social, and governance (ESG) controversies, type of media reach, and media severity affects firm value in India's emerging and developing market. By anchoring enacted sensemaking theory with agendasetting theory and attribution theory, we offer the first investigation of how firm value is impacted by the reach and severity of ESG controversies in the context of voice and accountability (VA). Drawing on a comprehensive dataset for 2007–2016, this study reveals the critical condition for ESG controversies to impact firm value. The media coverage of ESG controversies decreases firm value only when the media reach is high, as high reach has a more distributable capacity and greater situated cognition magnitude. On the other hand, media coverage could enhance firm value when the severity is high, as higher severity results in sensemaking intensification that lowers crisis severity. Upon reflection on these results, our study reveals that the fundamental media machinery expected to control ESG controversies is possibly much more fragile than formerly understood. Therefore, mere media reporting of ESG controversies does not overtly lead to stakeholders' sanctions and valuation effects.

The Effect on Stock Price Inclusion or Exclusion from the FTSE4good Bursa Malaysia

Article

Full-text available

Dec 2022

The fight for sustainability in finance is a conundrum that divides opinions among market participants. Given its potential hefty increase in the cost of operation, there is a perception that a sustainable investment could slow down financial returns. This leads one to wonder how market participants will respond to the sustainable-related announcements. To address the issue, this study investigated the sensitivity of investors towards the Environmental, Social, and Governance (ESG) movement in Malaysia by examining the announcement effect of inclusion or exclusion of a firm from the FTSE4Good Bursa Malaysia Index by employing an event study analysis. Our findings indicated that investors are sensitive to both announcements, but stock price adjusts faster towards deletion announcements compared to inclusion announcements from the index. This study enriches the literature on semi-strong market efficiency although slight evidence suggests possible overreaction and momentum trading. The study also showed that Malaysian investors are sensitive to ESG announcements, as the inclusion (exclusion) of stock is met with positive (negative) effects on returns.

Is being a green firm beneficial the company during the COVID-19 pandemic? Examining ESG and non ESG-based firms in Indonesia

Article

Full-text available

Dec 2022

Tanjung Miranda

Does it pay to be green in times of crisis?". The question merits an answer from academics and practitioners. Hereafter, the study specifically explores the interplay between a firm's cost of capital and financial performances among publicly traded firms by incorporating the effect of the COVID-19 pandemic into the examination model. The study employs the Driscoll-Kraay estimator for panel regression and fixed-effect regression with robust standard error for the analysis. Top-rated ESG and non-ESG listed companies on the Indonesian stock exchange in 2017-2020 are studied separately in two categories for the tests. The study discovers two key findings: (1) cost of capital harms ESG firm's ROE and (2) cost of capital has a negative influence on non-ESG firm's market value (Tobin's q). The results from the study could serve as a reference for academics and practitioners to understand the pandemic-caused crisis effect on firm's capital structure and financial performance. The study also explains how firms with superior ESG might perform differently from non-ESG-based firms in terms of surviving during a crisis such as the COVID-19 pandemic. Result from the study also indicates that lenders, investors, key stakeholders in the Indonesian market have not been as attentive as market participants and investors in the developed markets in responding to ESG issues and ESG-related risks. By carefully considering environmental and social issues in their capital budgeting and investment decision, business enterprises and financial institutions can optimize their assets and achieve higher efficiency ratios while avoiding investments and projects that will not pay off in the long run due to longer-term social and environmental concerns.

The relevance of non‐financial disclosure in influencing the cost of capital: Empirical evidence from the agri‐food sector

Article

Jul 2022

The growing sensitivity of stakeholders towards health, food safety and environmental protection has pushed agri‐food companies to embrace a new way of doing business, making huge investments to reduce their impact on ecosystem. However, these efforts would be in vain if not properly communicated, especially to financial institutions and investors, as they are the fundamental and supportive stakeholders. Through non‐financial disclosure, indeed, this greater transparency would translate into benefits, such as creditworthiness, lower risks and costs of capital. From these considerations, this study aims at verifying to what extent the implementation of sustainability strategies can affect the overall cost of capital, observed in its dual form: debt and equity. In particular, through panel data analyses, it tested how non‐financial disclosure—measured by Bloomberg's disclosure scores—could influence the cost of capital of a sample of 73 international agricultural firms observed from 2015 to 2019. The results showed a significant and negative relationship, suggesting that a higher level of disclosure could be effective in lowering firms' financial burden. This study contributes to the literature on non‐financial disclosure and cost of capital as it studies this phenomenon in a sector in which previous research is limited.

When Do ESG Controversies Reduce Firm Value in India?

Article

Full-text available

Feb 2023
Global Finance J

The Role of Multiple Large Shareholders in Dividend Payouts: Evidence from India

Article

Full-text available

May 2022

This study examines the impact of multiple large shareholders (MLS) on a firm’s dividend payouts in a low-investor protection regime, India, where minority shareholders’ expropriation concerns are severe and firms have an incentive to build a capital market reputation. Therefore, we purport for the prevalence of the substitution hypothesis, whereby MLS cooperate in paying larger dividends to assuage expropriation concerns for reputation-building. The empirical analysis using non-financial firms with MLS listed on NIFTY 500 from 2009 to 2019 yields that both the controlling owner and MLS positively influence dividend payout intensity. Additional analyses also demonstrate that the positive effect of MLS is prominent in growing firms that undertake equity issuances and firms with lower board independence. We also find that firms make relatively lower payouts when an institutional investor is the second largest shareholder. Further, it is shown that MLS engage in greater dividend smoothing. Lastly, it is observed that dividends are more valuable for firms with higher MLS ownership. Altogether, these findings support the substitution hypothesis.

Corporate social responsibility and cost of capital: The moderating role of policy intervention

Article

Feb 2022
Res Int Bus Finance

Corporate social responsibility (CSR) and cost of capital (COC) have been investigated in the past but not in tandem with policy intervention. This paper examines the impact of CSR on COC together with the policy intervention of mandatory CSR. This study uses a sample of 512 nonfinancial firms in India as a case and the costs of debt (COD) and equity (COE) as measures for COC. The findings indicate that (1) higher CSR performance decreases COD and increases COE and that (2) mandatory CSR legislation moderates their relationships such that it increases COD and COE. Therefore, consistent with signaling theory, we conclude that mandatory CSR spending signals a loss of discretionary power of CSR spending and signal intentionality and an implicit increase in agency costs.

Does corporate social responsibility disclosure impact firm performance? An industry-wise analysis of Indian firms

Article

Full-text available

Sep 2021
Environ Dev Sustain

Despite a large number of studies examining the relationship between corporate social responsibility disclosure (CSRD) and corporate financial performance (CFP), the literature remains inconclusive. Moreover, most of the studies are conducted in the context of American and European firms and remain scarce in the context of developing economies. To bridge this significant gap, this study attempts to investigate the strength of the relationship between CSRD and CFP of Indian firms. The study uses ESG (environmental, social and governance) score as a proxy for CSRD and investigates its relationship with both market-based and accounting-based financial performance measures for Indian companies. Both aggregate and disaggregate analyses based on industry type are carried out. The study includes a sample of 287 companies from the financial year 2014–2015 to 2018–2019 and employs panel data regression using pooled ordinary least squares (OLS), fixed effect and random effect model. The findings indicate that CSR disclosure has varying effects on CFP metrics. For industries—consumer goods, consumer services and heavy engineering, CSRD is positively associated with CFP, while for healthcare and energy and utility firms, the relationship between CSRD and CFP is negative. Overall, the type of industry, as well as the type of financial performance indicator, shows varying CSRD–CFP dynamics. The relevance of this study lies in the increasing importance of social responsibility and the growing contribution of emerging markets in international business. The study offers implications to assist policymakers, regulators and corporate managers in better understanding the CSRD–CFP structures in the context of a developing economy.

Guest editorial

Article

Full-text available

May 2021

Kanji Tanimoto

Corporate Social Responsibility and Financial Risk: Exploring Default Risk in Indian Firms

Article

Full-text available

Sep 2024

Neetu Yadav

This paper examines the impact of corporate social responsibility (CSR) expenditure on default risk for Indian firms during the period from 2015 to 2021. Using distance to default (DTD) and probability of default (PD) at different time horizons as proxies for default risk, we find that CSR expenditure is negatively related to default risk. This indicates that CSR engagement enhances a firm’s reputation and financial stability, thereby reducing the likelihood of default. Surprisingly, we find that this relationship is less pronounced for group-affiliated firms, as stand-alone firms rely more on CSR to establish market credibility. Our findings highlight the strategic importance of CSR compliance, emphasizing its role in risk management and financial resilience. Our study provides insights for policymakers and managers in emerging economies, underscoring how mandatory CSR can foster a more sustainable and risk-averse corporate environment, particularly for firms without the support of business group affiliation.

Do corporate governance mechanisms and ESG disclosures improve bank performance and stability in an emerging economy?

Article

May 2024

Purpose This paper aims to investigate the impact of corporate governance mechanisms and the environmental, social and governance (ESG) disclosure score on bank performance and financial stability. Further, this paper analyses how this relationship varies over the different ownership structures. Design/methodology/approach The paper uses a sample of 41 Indian banks (including both public sector and private sector banks) over the period ranging from 2008 to 2020. The data is analyzed in both static and dynamic frameworks using panel regression and system generalized methods of moments. Findings The results indicate that the frequency of board meetings has a negative influence on the performance of the banks. Gender diversity reveals both linear and non-linear relationships with bank performance. In the sample of public sector banks, the board size and promoters’ ownership have a significant negative effect on the bank's performance. In private sector banks, CEO duality adversely affects performance. Further, the results indicate that ESG disclosure score is positively linked with the profitability of banks. Originality/value This paper provides a comprehensive analysis of the impact of corporate governance mechanisms and ESG disclosure scores on bank performance and stability in the context of the Indian economy. To the best of the authors’ knowledge, there has been no empirical investigation or study that has been conducted in this respect.

PENGARUH SUSTAINABILITY REPORT QUALITY, KINERJA LINGKUNGAN, DAN KUALITAS LABA TERHADAP COST OF EQUITY DENGAN KOMITE AUDIT SEBAGAI VARIABEL MODERASI

Article

Full-text available

Aug 2024

Penelitian ini bertujuan untuk menguji dan mengetahui pengaruh Sustainability Report Quality, Kinerja Lingkungan, dan Kualitas Laba terhadap Cost of Equity dengan Komite Audit sebagai pemoderasi. Penelitian ini menggunakan data sekunder yang dihimpun dari Sustainability Report dan laporan tahunan. Populasi penelitian ini adalah perusahaan sektor Consumer Non-Cylicals, Healthcare, Energy, Basic Materials. Industrials, dan Infrastructure yang terdaftar di Bursa Efek Indonesia periode 2020-2022. Metode penelitian ini adalah purposive sampling dan diperoleh 88 sampel. Penelitian ini menggunakan metode analisis regresi linier berganda dengan pengolahan data menggunakan program SPSS. Hasil dari penelitian ini menunjukkan Kualitas Laba dan Komite Audit yang diproksikan dengan Frekuensi Rapat Komite Audit berpengaruh negatif terhadap Cost of Equity, Sustainability Report Quality dan Kinerja Lingkungan tidak berpengaruh terhadap Cost of Equity, dan Komite Audit yang diproksikan dengan Frekuensi Rapat Komite Audit tidak mampu memoderasi pengaruh seluruh variabel independen terhadap Cost of Equity.

ESG and firm value: A hybrid literature review on cost of capital implications from Scopus database

Article

Aug 2024

The relationship between ESG and firm value has been a relevant subject of study in recent years. We conducted a hybrid literature review to understand the literature's findings on this relationship and its implications in terms of cost of capital. First, a keyword co‐occurrence analysis on a 122 ABS ranked journals articles selection from Scopus database was adopted to identify and investigate the main research fields of the current literature. Then a content analysis through the bibliographic coupling of the most globally cited contributions was made, defining a final sample of 50 articles obtained through a minimum threshold of at least 15 total global citations (TGCs). We found that studies on the cost of debt configuration are more aimed at determining the implications on firm value, while most contributions on the cost of equity focus on the assessment of the risk–return profile for the investor or the construction of an ESG portfolio. Furthermore, we found that most of the literature has a consensus view on the lack of transparency behind the ESG ratings and their construction methodology, stating that disagreement on ESG ratings not only limits the results of empirical analysis, but can also negatively affect firm value due to a higher level of uncertainty.

The impact of environmental, social, and governance performance on the duration of earnings sustainability: a survival analysis

Article

Jun 2024

Research on the Impact of ESG Rating Divergence on Equity Financing Costs

Article

Jan 2024

莹汪

Can the green experience of CEO improve ESG performance in heavy polluting companies? Evidence from China

Article

Feb 2024

This paper focuses on Chief Executive Officers (CEOs) with green experience, using data from listed companies in China's heavy pollution industry spanning from 2011 to 2021, the study explores the impact of CEO green experience on the Environmental, Social, and Corporate Governance (ESG) performance of companies. The study reveals that CEO green experiences contribute to enhancing firms' ESG performance. The research further unveils that management's green perceptions and corporate green innovations play a partial mediating role in the relationship between CEO green experiences and corporate ESG performance. Heterogeneity analysis indicates that the influence of CEO green experiences on corporate ESG performance is more pronounced in samples characterized by high environmental regulation, capital‐intensive operations, and non‐state ownership. The findings of this study enrich the theory of corporate ESG performance power mechanisms and provide theoretical references for enhancing the ESG performance of heavily polluting firms.

Exploring corporate social responsibility expenditures in manufacturing firms

Article

Full-text available

Apr 2024

Najib H.S Farhan

The main aim of this study is to explore corporate social responsibility expenditure in Indian manufacturing firms. The study sample consists of 62 firms listed on the Bombay Stock Exchange (BSE). Findings revealed that environment and pollution control expenses vary significantly between mature and young firms and before and after the pandemic as well. Moreover, regression analysis results show that employee compensation expenses negatively affect firms’ performance. these results contradict Nwanne (2016), Walker (2019), and Tulcanaza-Prieto et al. (2020). Similarly, social and community expenses negatively and significantly impact the performance of Indian manufacturing firms. These results consist with Gangi et al. (2018), Tulcanaza Prieto et al. (2020), Kvasić et al. (2016), and Nwanne (2016). On the contrary, donation-related expenses positively affect the profitability of Indian manufacturing firms. These results are consistent with Nwanne (2016), and Gangi et al. (2018). Therefore, this study has three folds of contributions. Firstly, it attempts to unveil corporate social responsibility (CSR) expenditures after the Companies Act, 2013 using a large sample and a longer period of study and making a comparison between mature and young firms Indian manufacturing companies. Secondly, this study examines the impact of the COVID-19 pandemic on CSR expenditures. Finally, hardly any study has relied on secondary data for conducting sustainability or CSR expenditure research in the Indian context. Hence, this study addresses this void by relying on secondary data to examine CSR expenditures during the pandemic.

Examining the impact of liquidity creation on bank stability in the Asia Pacific region: Do ESG disclosures play a moderating role?

Article

Mar 2024
J Int Financ Market Inst Money

Capital Structure Decisions Influencing Non-Financial Performance of Companies (ESG)

Chapter

Full-text available

Nov 2023

There seems to be a growing demand for companies to disclose information about natural, human, and financial resources used by them and its implications on environment and society. This gives rise to ESG metrics and related corporate reporting in their annual reports. The study aims to examine the relationship between internal and external sources of funds and the environmental, social, and governance score. The study is based on a sample of Nifty 50 companies listed on the National Stock Exchange of India, consisting of 245 observations. The study period was 5 years starting from 2017 to 2021. The variables studied were debt-equity ratio; retained earnings; and environmental, social, and corporate governance performance (ESG score). The study provides evidence of a negative relationship between debt-equity ratio and ESG score. The practical implication of the study is taken from the findings that it is high time for the firms to pay more attention towards improving their ESG score by taking up more sustainable projects through compliance of regulations in their business decisions.

The Valuation Channel of Corporate Social Responsibility in Emerging Markets: Evidence from the Cost of Equity

Article

Jan 2023

Richard Gregory

ESG Investment and Sustainability Reporting: A Systematic Review for Future Research

Chapter

Nov 2023

Sustainable finance is an area of study that looks beyond the simple number of risk and return. It looks over the impact of investment on ESG, i.e., environment, society, and governance factors. This paper conducts a comprehensive review of research works on ESG and its disclosures using the TCCM framework and thematic analysis, specifically in the Indian context, to determine future research priorities and research gaps in India. The search parameters identified 50 research papers, 44 of which were accepted for analysis. The study identified a gap in the available literature that allows for future observation. The study agenda in this review may help researchers to construct specific research fields around the discovered gaps. ESG investment has emerged as a critical problem for businesses. As a result, a considerable study in this sector is required to grow this topic as an operational investment area.

Normativas de sostenibilidad empresarial implementadas por países emergentes y desarrollados y su comparación con el entorno empresarial ecuatoriano.

Article

Full-text available

Dec 2022

Praktik akuntansi lingkungan dan biaya modal pada perusahaan di Indonesia

Article

Aug 2022

Observe the development of social responsibility, especially in the field of environment, and the performance of corporate governance in Indonesia are important factors in the company's operations. A number of companies do not participate in this disclosure activity, which will result in new costs that will be borne by the company. The high and low cost of capital owned by a company will show how much risk the company will accept in order to obtain funding for the company's sustainability. This research was conducted to produce an analysis of the effect of the level of environmental accounting practices on the cost of equity capital or the cost of debt capital and the effect of corporate governance performance on the cost of equity capital or the cost of debt capital. This study uses data on financial statements and sustainability reports of companies listed on the Indonesia Stock Exchange from 2016 to 2020. The test results show that financial environmental accounting practices and corporate governance performance consist of block ownership, board size, gender diversity, and board tenure. has a significant effect on the cost of equity capital. on the cost of debt capital, only the board size variable has a significant effect. This research encourages companies to be able to participate in the disclosure of environmental performance and corporate governance.

ESG Disclosure and Financial Risk: Firm-Level Evidence

Article

Jan 2022

Corporate social responsibility performance, reporting and generalized methods of moments (GMM): A structured review of corporate governance determinants and firms’ financial consequences

Article

Full-text available

Jan 2022

Patrick Velte

In line with the business case argument for corporate social responsibility (CSR), CSR performance and reporting should lead to positive firms’ financial outputs. As CSR issues may be linked with greenwashing behavior and self-impression management, effective corporate governance as a monitoring tool should increase CSR reporting and performance. While empirical-quantitative research on CSR extremely increased since the last decade, endogeneity concerns impair the validity of research results. This paper focusses on one of the most important techniques in order to include endogeneity concerns: the generalized method of moments (GMM) as dynamic panel regression. This paper summarizes the results of archival research on corporate governance determinants and firms’ financial consequences of CSR performance and reporting. The increased importance of managing and reporting on CSR issues represents the key motivation to conduct a systematic literature review. By including 131 quantitative peer-reviewed empirical studies in this field, in line with legitimacy and stakeholder theory, there are indications that 1) gender diversity positively influences CSR performance, and 2) CSR performance increases both accounting- and market-based financial performance (ROA and Tobin’s Q). A research agenda with detailed research recommendations is provided for future studies.

The sequential effect of CSR and COE: family ownership moderation

Article

Full-text available

Nov 2018

Purpose This paper aims to examine the sequential effect of cost of equity capital and corporate social responsibility (CSR) disclosure with family ownership as a moderating variable. Design/methodology/approach This empirical study examines samples of manufacturing firm in Indonesia using multiple regression analysis. Findings Firms with high cost of equity capital in previous years have extensive CSR disclosure level. Further, firms with extensive CSR disclosure get benefit of lower cost of equity capital in the following year. Family ownership weakens the effect of previous years cost of equity capital on CSR disclosure. On the other hand, family ownership does not moderate the effect of CSR disclosure on the cost of equity capital. Research limitations/implications This study has limitations in terms of CSR measurement using keywords which may not include overall reporting contents. This study also excludes information in sustainability reports and websites, images and scanned files that may provide additional information about the company’s social and environmental activities. This study is limited in terms of the generalization aspect because it only examines firms in one type of industry in one country over three years’ period. Originality/value This study provides empirical evidence on the sequential effect of cost of equity capital and CSR disclosure with family ownership as moderating variable from an emerging market context, which has been rarely explored in the previous research.

The Effect of Mandatory CSR Disclosure on Firm Profitability and Social Externalities: Evidence from China

Article

Full-text available

Nov 2017
J ACCOUNT ECON

We examine how mandatory disclosure of corporate social responsibility (CSR) impacts firm performance and social externalities. Our analysis exploits China's 2008 mandate requiring firms to disclose CSR activities, using a difference-in-differences design. Although the mandate does not require firms to spend on CSR, we find that mandatory CSR reporting firms experience a decrease in profitability subsequent to the mandate. In addition, the cities most impacted by the disclosure mandate experience a decrease in their industrial wastewater and SO2 emission levels. These findings suggest that mandatory CSR disclosure alters firm behavior and generates positive externalities at the expense of shareholders.

The Link Between (Not) Practicing CSR and Corporate Reputation: Psychological Foundations and Managerial Implications

Article

Full-text available

Jun 2018
J BUS ETHICS

It is often assumed that corporate social responsibility (CSR) is a very promising way for corporations to improve their reputations, and a positive link between practicing CSR and corporate reputation is supported by empirical evidence. However, little is known about the mechanisms that underlie this relationship. In addition, the effects of not practicing CSR on corporate reputation have received little attention thus far. This paper contributes to the literature by analyzing the cause-and-effect relationships between (not) practicing CSR and corporate reputation. To this end, the paper draws on a psychological framework, in particular, on insights from expectancy violations theory and attribution theory. Building on the ideal-type distinction between CSR in terms of voluntary engagement for society (“doing good”) and the prevention of irresponsible behavior (“avoiding bad”), the paper develops four propositions that unveil some fundamental cause-and-effect relationships between (not) practicing CSR, irresponsible behavior, and corporate reputation. In doing so, it also addresses the question under which conditions CSR leads to a buffering or backfiring effect on corporate reputation in the event of irresponsible behavior.

Does Corporate Social Responsibility Affect Information Asymmetry?

Article

Full-text available

Mar 2018
J BUS ETHICS

In this study, we examine the empirical association between corporate social responsibility (CSR) and information asymmetry by investigating their simultaneous and endogenous effects. Employing an extensive U.S. sample, we find an inverse association between CSR engagement and the proxies of information asymmetry after controlling for various firm characteristics. The results hold using 2SLS considering the reverse side of information asymmetry influencing CSR activities. The results also hold after mitigating endogeneity based on the dynamic panel system generalized method of moment. Furthermore, the CSR–information asymmetry relation is amplified in high-risk firms due to managers’ efforts to build a good reputation. Last, we find that CSR engagement is inversely associated with reputational risk measure and lower predicted value of reputational risk is positively associated with lower information asymmetry measures. We interpret these results as supporting the stakeholder theory-based, reputation-building explanation that considers CSR engagement as a vehicle to build and maintain firm reputation thereby enhancing the information environment.

Equity Financing and Social Responsibility: Further International Evidence

Article

Full-text available

Sep 2015

This paper investigates how corporate social responsibility (CSR) influences the cost of equity capital from a global perspective. With a full sample of 10,803 firm-year observations from 25 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 and Europe. In contrast, the results do not continue to hold in Asian countries. Our study provides 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, the Asian regulators should effectively promote public understanding and 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 designation and decision-making. Firms should carefully evaluate the risk of CSR investing and its effect on equity financing in different regions.

Corporate social responsibility and customer loyalty: Exploring the role of identification, Satisfaction and type of company

Article

Full-text available

Feb 2015
J Serv Market

Purpose – The aim of the authors of this paper is to propose a cognitive – affective – conative sequential model to study how three dimensions of corporate social responsibility (CSR) image (society, customers and employees) impact customer affective (identification and satisfaction) and behavioural (recommendation and repurchase) responses in the banking industry. The authors also test how the type of company (savings banks vs commercial banks) moderates customer responses to these three dimensions of CSR image. Design/methodology/approach – A multi-group structural equation model is tested using information collected from 648 savings banks’ customers and 476 commercial banks’ customers in Spain. Findings – The findings demonstrate that the perceptions of customer-centric CSR initiatives positively and consistently impact customer identification with the banking institution, satisfaction, recommendation and repurchase behaviours in the savings and commercial banks’ samples. The dimensions of CSR image that concern the activities oriented to society and employees only positively impact customer responses in the savings banks’ sample. Practical implications – The findings of this study can assist scholars in creating more informative CSR-based loyalty models that take into consideration new variables (satisfaction and type of company) and better approaches to the conceptualization of CSR image (e.g. the formative approach). The findings can also assist savings and commercial banks in better designing their CSR and communication initiatives to benefit from customer affective and conative responses. Originality/value – The contributions of the paper are threefold: the authors include satisfaction as a new variable in the study of the CSR-based loyalty model; the CSR image is conceptualized as a formative construct, and this provides new justifications for the mixed results reported by previous scholars who have analysed the effects of CSR image on customer loyalty; and the authors explore the moderating role of the type of company on the CSR-based loyalty model proposed in the paper.

Corporate Social Responsibility and Employee Retention of ‘Green’ Hotels

Article

Full-text available

Dec 2013

Noraini Aminudin

This study is designed to identify the organization identification in Malaysian hotels which practised CSR. This research seeks to identify the antecedent variables that attribute to the staff turnover among selected green hotels in Malaysia. For a hotel to achieve its goal in the business in the market, each employee must firstly identify and ensure what are the responsibilities as being a member in the organization. Their responsibilities do not only focus on their job descriptions but their responsibility to their stakeholders including suppliers, community, customers, and the environment.

Does CSR Reduce Firm Risk? Evidence from Controversial Industry Sectors

Article

Full-text available

Nov 2012

In this paper, we examine the relation between corporate social responsibility (CSR) and firm risk in controversial industry sectors. We develop and test two competing hypotheses of risk reduction and window dressing. Employing an extensive U.S. sample during the 1991–2010 period from controversial industry firms, such as alcohol, tobacco, gambling, and others, we find that CSR engagement inversely affects firm risk after controlling for various firm characteristics. To deal with endogeneity issue, we adopt a system equation approach and difference regressions and continue to find that CSR engagement of firms in controversial industry sectors negatively affects firm risk. To examine the premise that firm risk is more of an issue for controversial firms, we further examine the difference between non-controversial and controversial firm samples, and find that the effect of risk reduction through CSR engagement is more economically and statistically significant in controversial industry firms than in non-controversial industry firms. These findings support the risk-reduction hypothesis, but not the window-dressing hypothesis, and the notion that the top management of U.S. firms in controversial industries is, in general, risk averse and that their CSR engagement helps their risk management efforts.

Corporate Stakeholders and Corporate Finance

Article

Full-text available

Mar 1987

Corporate Social and Financial Performance: A Meta-Analysis

Article

Full-text available

Mar 2003

Most theorizing on the relationship between corporate social/environmental performance (CSP) and corporate financial performance (CFP) assumes that the current evidence is too fractured or too variable to draw any generalizable conclusions. With this integrative, quantitative study, we intend to show that the mainstream claim that we have little generalizable knowledge about CSP and CFP is built on shaky grounds. Providing a methodologically more rigorous review than previous efforts, we conduct a meta-analysis of 52 studies (which represent the population of prior quantitative inquiry) yielding a total sample size of 33,878 observations. The meta- analytic findings suggest that corporate virtue in the form of social responsibility and, to a lesser extent, environmental responsibility is likely to pay off, although the operationalizations of CSP and CFP also moderate the positive association. For example, CSP appears to be more highly correlated with accounting-based measures of CFP than with market-based indicators, and CSP reputation indices are more highly correlated with CFP than are other indicators of CSP. This meta-analysis establishes a greater degree of certainty with respect to the CSP-CFP relationship than is currently assumed to exist by many business scholars.

Corporate Social Responsibility: A Theory of the Firm Perspective

Article

Full-text available

Jan 2001

We outline a supply and demand model of corporate social responsibility (CSR). Based on this framework, we hypothesize that a firm's level of CSR will depend on its size, level of diversification, research and development, advertising, government sales, consumer income, labor market conditions, and stage in the industry life cycle. From these hypotheses, we conclude that there is an "ideal" level of CSR, which managers can determine via cost-benefit analysis, and that there is a neutral relationship between CSR and financial performance.

The Boundaries of Strategic Corporate Social Responsibility. Journal of Consumer Marketing, 18, 595-630

Article

Full-text available

Dec 2001
J Consum Market

Geoffrey P Lantos

Reviews the development of the corporate social responsibility (CSR) concept and its four components: economic, legal, ethical and altruistic duties. Discusses different perspectives on the proper role of business in society, from profit making to community service provider. Suggests that much of the confusion and controversy over CSR stem from a failure to distinguish among ethical, altruistic and strategic forms of CSR. On the basis of a thorough examination of the arguments for and against altruistic CSR, concurs with Milton Friedman that altruistic CSR is not a legitimate role of business. Proposes that ethical CSR, grounded in the concept of ethical duties and responsibilities, is mandatory. Concludes that strategic CSR is good for business and society. Advises that marketing take a lead role in strategic CSR activities. Notes difficulties in CSR practice and offers suggestions for marketers in planning for strategic CSR and for academic researchers in further clarifying the boundaries of strategic CSR.

A Microeconomic Model of Corporate Social Responsibility

Article

Full-text available

Jan 2011

Tommy Lundgren

This paper explores the economic mechanisms behind corporate social responsibility (CSR) in a microeconomic model of the firm. The study's motivation is to shed light on the potential causes of the observed phenomena of voluntary over-compliance among firms. We investigate how assumptions about costs and benefits affect CSR behavior through a stock of goodwill capital. In optimum, the firm must balance marginal costs and benefits of investing in CSR. We characterize the equilibrium and examine comparative statics and dynamics from a parameterized model. Finally, we link some of the model's results to the empirical literature on CSR.

Impacts of Positive and Negative Corporate Social Responsibility Activities on Company Performance in the Hospitality Industry

Article

Full-text available

Mar 2010
Int J Hospit Manag

In spite of growing concern for corporate social responsibility (CSR) in various industries including the hospitality industry, the relationship between CSR activities and financial performance is a rarely examined subject in the hospitality context. Especially, research measuring the separate impacts of positive and negative CSR activities on companies’ financial performances remains, as yet, unconsidered. Thus, this study examines different impacts of positive and negative CSR activities on financial performance of hotel, casino, restaurant and airline companies, theoretically based on positivity and negativity effects. Findings suggest mixed results across different industries and will contribute to companies’ appropriate strategic decision-making for CSR activities by providing more precise information regarding the impacts of each directional CSR activity on financial performance.

Putting the S Back in CSR: A Multi-level Theory of Social Change in Organizations

Article

Full-text available

Jan 2007

This paper provides a multi-level theoretical model to understand why business Title VI National Resource Center Grant (P015A030066) unpublished not peer reviewed

Can investing in corporate social responsibility lower a company's cost of capital?

Article

May 2014
Stud Econ Finance

Marcelo Cajias

Dynamics of capital structure: evidence from Indian manufacturing firms

Article

Jan 2018

The Impact of Mandated Corporate Social Responsibility: Evidence from India’s Companies Act of 2013

Article

Sep 2018
INT REV LAW ECON

Firms’ Corporate Social Responsibility (CSR) activity has become the subject of a large literature in recent years. This paper analyzes CSR activity using quasi-experimental variation created by Section 135 of India's Companies Act of 2013, which requires (on a “comply-or-explain” basis) that firms satisfying specific size or profit thresholds spend a minimum of 2% of their net profit on CSR. We examine effects on CSR spending and related outcomes, as well as exploring broader theoretical implications. Our analysis uses financial statement data on Indian firms from the Prowess database, along with hand-collected data from firms’ disclosures of CSR activity. Using a difference-in-difference approach, we find significant increases in CSR activity among firms affected by Section 135, especially along the extensive margin (i.e. in the fraction of firms engaging in CSR spending). The fraction of firms subject to Section 135 that engage in advertising expenditures declines, consistent with substitution between advertising and CSR. For a subset of large firms, we hand-collect comprehensive CSR data and find that while firms initially spending less than 2% increased their CSR activity, large firms initially spending more than 2% reduced their CSR expenditures after Section 135 came into effect. We explore various explanations for this presumably unintended consequence of Section 135, and also seek to derive some wider implications of this analysis for understanding the role of CSR.

Corporate Social Responsibility, Investor Protection, and Cost of Equity: A Cross-Country Comparison

Article

Aug 2018
J BANK FINANC

Based on a large international sample, we examine the effects of CSR on the cost of equity under different levels of investor protection. In countries where investor protection is strong (poor), our results show that the cost of equity falls (rises) when a firm invests in CSR. Our findings are robust to alternative variable definitions, sample selection, analyst forecast bias, and various methodological specifications. We also demonstrate that the investor base channel is able to explain different outcomes regarding the relation between CSR and the cost of equity, and we derive implications for both financial practice and public policy.

Mandatory Corporate Social Responsibility: The Indian Experience

Article

Jun 2018

Quality of Corporate Social Responsibility Disclosure and Cost of Equity Capital: Lessons from China

Article

Mar 2018

This article explores the relationship between the quality of corporate social responsibility (CSR) disclosure and the cost of equity capital by analyzing the financial data and CSR reports of A-share listed firms in China from 2008 to 2014. The quality of the CSR disclosure is shown to be negatively related to the cost of equity capital of the listed firms. This negative correlation proves to be more prominent among firms of environmentally sensitive industries. Taking the ownership of the listed firms into consideration, it is further confirmed that the negative relationship between the CSR disclosure and the cost of equity capital is of higher significance for state-owned enterprises (SOEs). Our findings also empirically demonstrate that the quality of CSR disclosure is more negatively related to the cost of equity capital among the large listed firms than the smaller ones.

The relationship between CSR disclosure and competitive advantage

Article

Sep 2017

Purpose This study aims to apply signaling theory to examine whether corporate social responsibility (CSR) disclosure can deliver effective signals to stakeholders to increase a firm’s competitive advantage in China. Whether ownership patterns or environmental sensitivity causes a significant difference in the relationship between a firm’s CSR disclosure and competitive advantage is also examined. Design/methodology/approach Data analysis is based on a regression model. Content analysis is performed to convert qualitative CSR information of Chinese firms into quantitative data, while intellectual capital (IC) is used as a proxy variable for competitive advantage. Findings The difference in competitive advantage impairment between environmentally sensitive industries (ESIs) and non-environmentally sensitive industries (NESIs) is significant. Further comparisons on the relationship between overall CSR disclosure and competitive advantage among state-owned enterprises, privately owned enterprises, ESIs and NESIs suggest that the relationship is negative. Research limitations/implications The study extends research of strategic CSR to signaling theory and competitive advantage. In particular, a research using IC as a proxy for competitive advantage is rare. It also contributes to the literature on competitive advantage and strategic CSR by examining the effects of both CSR disclosure and IC. Originality/value This paper provides evidence related to stakeholders’ reaction to managers’ various CSR strategies in China. The contribution of this study is that it confirms that different CSR initiatives have different effects on the competitiveness of enterprises in China.

HOW CORPORATE SOCIAL RESPONSIBILITY AFFECT CORPORATE REPUTATION? THE EVIDENCE FROM AN EMERGING MARKET

Article

Mar 2018

In addition to generating economic growth and competitiveness, companies are expected to integrate concerns about society and the environment in ongoing operations. Corporate social responsibility (CSR) initiatives are advocated to affect stakeholders’ perception of corporate reputation. This study aims to identify specific CSR items that drive reputation and to measure their individual impact. The results indicated that CSR items affect corporate reputation. Moreover, the intensity of this relationship varies for all items. Significant differences were found between citizens and specific stakeholders, and among the different groups of stakeholders. Furthermore, the study identified moderating effect of age and gender on relationship between CSR and corporate reputation. The results contribute to an extant body of evidence on the impact of CSR on corporate reputation by providing the perspective from both citizens and stakeholders.

The Economics of Disclosure and Financial Reporting Regulation: Evidence and Suggestions for Future Research

Article

Feb 2016
J ACCOUNT RES

This paper discusses the empirical literature on the economic consequences of disclosure and financial reporting regulation, drawing on U.S. and international evidence. Given the policy relevance of research on regulation, we highlight the challenges with: (i) quantifying regulatory costs and benefits, (ii) measuring disclosure and reporting outcomes, and (iii) drawing causal inferences from regulatory studies. Next, we discuss empirical studies that link disclosure and reporting activities to firm-specific and market-wide economic outcomes. Understanding these links is important when evaluating regulation. We then synthesize the empirical evidence on the economic effects of disclosure regulation and reporting standards, including the evidence on IFRS adoption. Several important conclusions emerge. We generally lack evidence on market-wide effects and externalities from regulation, yet such evidence is central to the economic justification of regulation. Moreover, evidence on causal effects of disclosure and reporting regulation is still relatively rare. We also lack evidence on the real effects of such regulation. These limitations provide many research opportunities. We conclude with several specific suggestions for future research. This article is protected by copyright. All rights reserved

Is a firm’s financial risk associated with corporate social responsibility?

Article

Oct 2015
MANAGE DECIS

Purpose – The purpose of this paper is to examine whether socially responsible firms behave differently from other firms in terms of financial risk using US-based firms from 1991 to 2012. Design/methodology/approach – The authors used the KLD social performance rating scores as the measure of corporate social responsibility (CSR) performance and obtained an initial sample of 38,158 firm-year observations from 1991 to 2012. The authors obtained the monthly consensus earnings forecast for fiscal year one and the monthly dispersions for these earnings forecasts from I/B/E/S, and the bond spread from DataStream database. Specifically, the authors question whether firms that exhibit CSR obtain market approval to reduce financial risk, thereby providing investors and regulators with more reliable and transparent financial information, as opposed to firms that do not meet the same criteria. Findings – The authors find that social responsible firms usually perform better in terms of their credit ratings and have lower credit risk, in terms of loan spreads when compared to corporate bond spreads, and in terms of distance to default. The results control for various measurements for CSR and time periods, consider various CSR dimensions and components, and use alternative proxies to improve the quality of financial risk estimates. Originality/value – The findings demonstrate the importance of considering both positive and negative CSR performance. Positive CSR ratings are associated with reduced financial risk while negative CSR performance scores lead to increased financial distress. Investors respond to positive CSR ratings.

Business sustainability performance and cost of equity capital

Article

Oct 2015
J CORP FINANC

Business sustainability has emerged as the theme of the 21st century. We examine whether and how different components of economic sustainability disclosure (ECON), as well as environmental, social, and governance (ESG) dimensions of sustainability performance affect cost of equity, individually and in aggregate. In addition, we investigate whether and how ECON and ESG sustainability interactively affect cost of equity capital. Costs of equity are calculated using industry adjusted earnings-price ratios and finite horizon expected return model. Using a sample of more than 3000 firms during 1990-2013, we find that ECON (ESG) is negatively associated with cost of equity, but only growth and research (environmental and governance) sustainability performance dimensions contribute to this relationship. Operation efficiency is positively, while social sustainability performance is only marginally, related to cost of equity. We also find that ECON and ESG sustainability performance interactively affect cost of equity. In general, the relationship between ECON (ESG) and cost of capital is strengthened when ESG (ECON) performance is strong.

Corporate Social Responsibility and Cost of Capital: An Empirical Study of the Taiwan Stock Market

Article

Jan 2014

We investigate the relationship between corporate social responsibility (CSR) and the cost of capital. In general, our results suggest that firms with CSR awards have lower cost of capital. In terms of firms' common risk factors, both book-to-market ratio and leverage are positively related to the cost of capital. In addition, family firms with CSR have lower cost of capital than do nonfamily firms with CSR. High earnings quality firms with CSR have significantly lower cost of capital than low earnings quality firms with CSR. Finally, firms with CSR and independent boards have lower cost of capital than firms with CSR but no independent boards.

Can Business Afford To Ignore Social Responsibilities?

Article

Apr 1960

Keith Davis

Business for business' sake? Or must businessmen act as "social godfathers?" This article answers these questions and suggests ways that social responsibilities can be appraised objectively and met squarely.

The Growing Concern Over Business Responsibility

Article

Jul 1960

William C. Frederick

The values that determined business responsibility in the past are gone. Somehow, we must set up a new standard by which businessmen can evaluate their obligations to their company and to society. This article sets forth the basis for the new standard.

The Case For and Against Business Assumption of Social Responsibilities

Article

Jun 1973

Keith Davis

The Price of Environmental, Social and Governance Practices Disclosure: An Experiment with Professional Private Equity Investor

Article

Dec 2014
J CORP FINANC

This paper sheds light on the impact environmental, social and governance (ESG) corporate practices disclosure have on equity financing. We present a unique framed field experiment in which professional private equity investors competed in closed auctions to acquire fictive firms. We hence observe that corporate non-financial (ESG) performance disclosure impacts firm valuation and investment decision and we quantify to which extent. Main result is an asymmetric effect, investors reacting more to bad ESG practices disclosure than to good ESG ones. Our findings are discussed in terms of practical implications for both investors and firm managers.

Relationship between environmental disclosures and corporate characteristics: A study of large manufacturing companies in India

Article

Jun 2009

Shuchi Pahuja

Purpose The purpose of this paper is to test the influence of selected company‐ and industry‐related variables on environmental disclosure practices (EDPs) of the large manufacturing Indian companies. Design/methodology/approach The work was done in three phases. In the first phase, an index of environmental disclosure was constructed consisting of 23 items of environmental information. Opinions of chartered accountants were obtained on the importance of each of these items in making sound investment and other decisions. Using this index, in the second phase, EDPs in the annual reports of 91 large manufacturing companies were examined for a period of three consecutive years. Environmental disclosure score (EDS) percentages were calculated for each of the companies for all the three years. The relationship between EDS percentages and ten selected variables was analyzed with the help of the multiple regression technique in the last phase. Findings The results provide strong evidence in support of the influence of variables size, profitability, sector, industry and environmental performance on EDPs. Research limitations/implications The work involves analysis of EDPs of large manufacturing companies in India only. Non‐manufacturing and small companies were excluded from the scope of the work. Disclosure of environmental information by other media like stand‐alone corporate environmental report (CER) and internet was not considered. It was felt that further research was necessary to find the impact of other factors like country origin, organizational culture, experience with pressure groups and media profile on disclosure practices. Practical implications It was felt that environmental reporting should be made mandatory in India at least in the major polluting industries. Companies should also voluntarily try to provide audited environmental information in the annual reports to build credibility and trust among corporate stakeholders. Originality/value The paper presents empirical evidence of EDPs of large manufacturing companies in India. It provides an insight into the factors that cause a difference in these practices.

The Impact of Corporate Social Responsibility on Customer Satisfaction, Relationship Maintenance and Loyalty in the Shipping Industry

Article

Mar 2014

This paper aims to examine the impact of perceived corporate social responsibility (CSR), with a focus on ethical and environment questions related to the constructs of customer satisfaction (CS), relationship maintenance (RM) and customer loyalty (CL), on determining the attitudinal and behavioural loyalty and maintenance of customers in the shipping industry. For this purpose, this study enhances its empirical validity by collecting data from 214 respondents in South Korea and testing the hypothesis using structure equation modelling. It was found that (1) CSR is an effective relationship marketing tool that requires further research to investigate its benefits; (2) systemic investigation in CSR activities in the shipping industry finds publishing CSR reports the most preferred tool among major shipping companies; and (3) there is a strong empirical evidence which supports that values have a significant impact on the customers' perception of CSR performance. Copyright © 2014 John Wiley & Sons, Ltd and ERP Environment

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

Article

Sep 2012

Carmelo Reverte

In this paper, we provide evidence on the impact of the quality of corporate social responsibility (CSR) reporting on the cost of equity capital for a sample of Spanish listed firms. We aim to verify whether firms with higher CSR disclosure ratings enjoy significantly lower costs of equity capital, after controlling for the well-known Fama and French risk factors (i.e. beta, market-to-book, and size). Consistent with our main hypothesis, we find a significant negative relationship between CSR disclosure ratings and the cost of equity capital. We also obtain that the negative relationship between CSR reporting quality and the cost of equity capital is more pronounced for those firms operating in environmentally sensitive industries. Our findings contribute to the debate on whether CSR activities are value-enhancing or value-neutral by showing that improved CSR can enhance firm value by reducing the firm's cost of equity capital. This implies that CSR reporting is a part of a firm's communication tools in order to decrease information asymmetries between managers and investors. In other words, mandatory social responsibility reporting is called for in order to produce a more precise valuation of a firm. Copyright © 2011 John Wiley & Sons, Ltd and ERP Environment.

How Does the Stock Market Value Corporate Social Performance? When Behavioral Theories Interact with Stakeholder Theory

Article

Dec 2013

This study examines how the reference-point effect and sunk-cost fallacy interact with stakeholder theory and influence how investors evaluate corporate social performance. We propose that ex-ante (pre-IPO) corporate social performance influences ex-post (post-IPO) perceived riskiness and that this relationship is U-shaped. We also evaluate how CEO duality and company age moderate this U-shaped relationship. Using young and newly public entrepreneurial firms in China, and focusing on stock returns in the secondary market, empirical results and robustness tests provide strong support for our hypotheses.

Beyond “Does it Pay to be Green?” A Meta-Analysis of Moderators of the CEP–CFP Relationship

Article

Mar 2013

Review of extant research on the corporate environmental performance (CEP) and corporate financial performance (CFP) link generally demonstrates a positive relationship. However, some arguments and empirical results have demonstrated otherwise. As a result, researchers have called for a contingency approach to this research stream, which moves beyond the basic question “does it pay to be green?” and instead asks “when does it pay to be green?” In answering this call, we provide a meta-analytic review of CEP–CFP literature in which we identify potential moderators to the CEP–CFP relationship including environmental performance type (e.g., reactive vs. proactive performance), firm characteristics (e.g., large vs. small firms), and methodological issues (e.g., self-report measures). By analyzing these contingencies, this study attempts to provide a basis on which to draw conclusions regarding some inconsistencies and debates in the CEP–CFP research. Some of the results of the moderator analysis suggest that small firms benefit from environmental performance as much or more than large firms, US firms seem to benefit more than international counterparts, and environmental performance seems to have the strongest influence on market-measures of financial performance.

Corporate Social Responsibility Disclosure and the Cost of Equity Capital: The Roles of Stakeholder Orientation and Financial Transparency

Article

Feb 2012
J Account Publ Pol

We examine the benefit associated with corporate social responsibility (CSR) disclosure in an international setting covering 31 countries. Based on various countries’ legal status on labor protection, CSR disclosure requirements, and public awareness of and attitudes towards CSR issues, we divide them into more stakeholder-oriented and less stakeholder-oriented groups. We find a negative association between CSR disclosure and the cost of equity capital that is more pronounced in stakeholder-oriented countries. We also find evidence that financial and CSR disclosures act as substitutes in reducing the cost of equity capital. This study furthers our understanding of the reasons that firms provide CSR disclosure and its consequences.

From CSR1 to CSR2: The Maturing of Business-and-Society Thought

Article

Aug 1994

William C. Frederick

This 1978 paper outlines a conceptual transition in business and society scholarship, from the philosophical-ethical concept of corporate social responsibility (corporations' obligation to work for social betterment) to the action-oriented managerial concept of corporate social responsiveness (the capacity of a corporation to respond to social pressure). Implications of this shift include a reduction in business defensiveness, an increased emphasis on techniques for managing social responsiveness, more empirical research on business and society relationships and constraints on corporate responsiveness, a continued need to clarify business responsibilities, and a need to work toward more dynamic theories of values and social change.

Misery Loves Companies: Rethinking Social Initiatives by Business

Article

Jun 2003

Companies are increasingly asked to provide innovative solutions to deep-seated problems of human misery, even as economic theory instructs managers to focus on maximizing their shareholders' wealth. In this paper, we assess how organization theory and empirical research have thus far responded to this tension over corporate involvement in wider social life. Organizational scholarship has typically sought to reconcile corporate social initiatives with seemingly inhospitable economic logic. Depicting the hold that economics has had on how the relationship between the firm and society is conceived, we examine the consequences for organizational research and theory by appraising both the 30-year quest for an empirical relationship between a corporation's social initiatives and its financial performance, as well as the development of stakeholder theory. We propose an alternative approach, embracing the tension between economic and broader social objectives as a starting point for systematic organizational inquiry. Adopting a pragmatic stance, we introduce a series of research questions whose answers will reveal the descriptive and normative dimensions of organizational responses to misery.

The Debate Over Doing Good: Corporate Social Performance, Strategic Marketing Levers, and Firm-Idiosyncratic Risk

Article

Nov 2009
J MARKETING

Marketers and investors face a heated, provocative debate over whether excelling in social responsibility initiatives hurts or benefits firms financially. This study develops a theoretical framework that predicts (1) the impact of corporate social performance (CSP) on firm-idiosyncratic risk and (2) the role of two strategic marketing levers, advertising and research and development (R&D), in explaining the variability of this impact among different firms. The results show that higher CSP lowers undesirable firm-idiosyncratic risk. Notably, although the salutary impact of CSP is greater in firms with higher (versus lower) advertising, a simultaneous pursuit for CSP, advertising, and R&D is harmful with increased firm-idiosyncratic risk. For theory, the authors advance the literature on the marketing-finance interface by drawing attention to the risk-reduction potential of CSP and by shedding new light on some critical but neglected roles of strategic marketing levers. They also extend CSP research by moving away from the long-fought battle for a universal CSP impact and toward a finer-grained understanding of when some firms derive more risk-reduction benefits from CSP. For practice, the results indicate that the “goodwill refund” of CSP is not unconditional. They also empower marketers to communicate more effectively with investors (i.e., doing good to better manage the risk surrounding firm stock prices).

Corporate Social Reporting Practices in Western Europe

Article

Mar 1998

This study identifies factors that influence all types of social disclosures. A sample of 150 annual reports from six European countries was examined using content analysis. The results indicate that company size, industrial grouping and country of domicile all influence corporate social reporting patterns. It was found that `super-large' companies are significantly more likely to disclose all types of corporate social information. Industry membership was found to be related to the decision to report environmental and some employee information, but not to ethical disclosures. In addition, while size and industry membership were important in all six countries, the amount and nature of information disclosed varies significantly across Europe. Whilst legitimacy theory can be employed to explain differences related to size and industry membership, an initial analysis indicates that the reasons for differences across countries are much more complex and we offer suggestions as to how these may be explored in further research.Copyright 1998 Academic Press Limited

The Effect of Socially Responsible Investing on Portfolio Performance

Article

Nov 2007
EUR FINANC MANAG

More and more investors apply socially responsible screens when building their stock portfolios. This raises the question whether these investors can increase their performance by incorporating such screens into their investment process. To answer this question we implement a simple trading strategy based on socially responsible ratings from the KLD Research & Analytics: Buy stocks with high socially responsible ratings and sell stocks with low socially responsible ratings. We find that this strategy leads to high abnormal returns of up to 8.7% per year. The maximum abnormal returns are reached when investors employ the best-in-class screening approach, use a combination of several socially responsible screens at the same time, and restrict themselves to stocks with extreme socially responsible ratings. The abnormal returns remain significant even after taking into account reasonable transaction costs.

Corporate social responsibility and employee commitment

Article

Jan 2007
Bus Ethics Eur Rev

Effective corporate social responsibility policies are a requirement for today's companies. Policies have not only to be formulated, they also have to be delivered by corporate employees. This paper uses existing research findings to identify two types of factors that may impact on employee motivation and commitment to CSR ‘buy-in’. The first of these is contextual: employee attitudes and behaviours will be affected by organizational culture and climate, by whether CSR policies are couched in terms of compliance or in terms of values, and by whether such policies are integrated into business processes or simply an ‘add-on’ that serves as window-dressing. The second set of factors is perceptual. Motivation and commitment will be affected by the extent to which they can align personal identity and image with that of the organization, by their perceptions of justice and fairness both in general and in terms of how CSR performance is rewarded, and by their impressions concerning the attitude of top management to CSR issues and performance.

On Equilibrium Pricing Under Parameter Uncertainty

Article

Sep 1995
J FINANC QUANT ANAL

Prior theoretical work on estimation risk generally has been restricted to single-period, returns-based models in which the investor must estimate the vector of expected returns but the covariance matrix is known. This paper extends the literature on parameter uncertainty in several ways. First, we analyze asymmetric parameter uncertainty in a model based on payoffs. Second, we explore the effects of both symmetric and asymmetric estimation risk on equilibrium asset prices when the covariance matrix for payoffs must also be estimated. Finally, we investigate the effects on equilibrium of asymmetric parameter uncertainty in a simple multi period model.

Concepts and Definitions of CSR and Corporate Sustainability: Between Agency and Communion

Article

May 2003

Marcel van Marrewijk

This paper provides an overview of the contemporary debate on the concepts and definitions of Corporate Social Responsibility (CSR) and Corporate Sustainability (CS). The conclusions, based on historical perspectives, philosophical analyses, impact of changing contexts and situations and practical considerations, show that "one solution fits all"-definition for CS(R) should be abandoned, accepting various and more specific definitions matching the development, awareness and ambition levels of organizations.

Another Look at Instrumental Variable Estimation of Error Component Models

Article

Sep 1990
J ECONOMETRICS

This article develops a framework for efficient IV estimators of random effects models with information in levels which can accommodate predetermined variables. Our formulation clarifies the relationship between the existing estimators and the role of transformations in panel data models. We characterize the valid transformations for relevant models and show that optimal estimators are invariant to the transformation used to remove individual effects. We present an alternative transformation for models with predetermined instruments which preserves the orthogonality among the errors. Finally, we consider models with predetermined variables that have constant correlation with the effects and illustrate their importance with simulations.

Does Corporate Social Responsibility Affect the Cost of Capital?

Article

Jan 2010

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.

Initial Conditions and Moment Conditions in Dynamic Panel Data Model

Article

Nov 1998
J ECONOMETRICS

Estimation of the dynamic error components model is considered using two alternative linear estimators that are designed to improve the properties of the standard first-differenced GMM estimator. Both estimators require restrictions on the initial conditions process. Asymptotic efficiency comparisons and Monte Carlo simulations for the simple AR(1) model demonstrate the dramatic improvement in performance of the proposed estimators compared to the usual first-differenced GMM estimator, and compared to non-linear GMM. The importance of these results is illustrated in an application to the estimation of a labour demand model using company panel data.

A Simple Model of Capital Market Equilibrium With Incomplete Information

Article

Feb 1987

Bibliography: leaves 53-56. Robert C. Merton.

The linkage between CSR and cost of equity: an Indian perspective

Abstract

No full-text available