Abstract

http://ssrn.com/abstract=1546755
 
 

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Does Corporate Social Responsibility Affect the Cost of Capital?


Sadok El Ghoul


University of Alberta - Campus Saint-Jean

Omrane Guedhami


University of South Carolina - Moore School of Business

Chuck C.Y. Kwok


University of South Carolina - Moore School of Business

Dev R. Mishra


University of Saskatchewan - Edwards School of Business

July 1, 2010

Journal of Banking & Finance, Vol. 35, Issue 9, pp. 2388-2406, September 2011

Abstract:     
We examine the effect of corporate social responsibility (CSR) on the cost of equity capital for a large sample of U.S. firms. Using several approaches to estimate firms’ ex ante cost of equity, we find that firms with better CSR rankings 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.

Number of Pages in PDF File: 63

Keywords: Cost of equity capital, Corporate social responsibility

JEL Classification: G32, G34, M14

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Date posted: February 3, 2010 ; Last revised: November 29, 2014

Suggested Citation

El Ghoul, Sadok and Guedhami, Omrane and Kwok, Chuck C.Y. and Mishra, Dev R., Does Corporate Social Responsibility Affect the Cost of Capital? (July 1, 2010). Journal of Banking & Finance, Vol. 35, Issue 9, pp. 2388-2406, September 2011. Available at SSRN: http://ssrn.com/abstract=1546755

Contact Information

Sadok El Ghoul
University of Alberta - Campus Saint-Jean ( email )
Edmonton, Alberta T6G 2R3
Canada
780-465-8725 (Phone)
780-465-8760 (Fax)
Omrane Guedhami (Contact Author)
University of South Carolina - Moore School of Business ( email )
Columbia, SC
United States
Chuck C.Y. Kwok
University of South Carolina - Moore School of Business ( email )
1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States
803-777-3606 (Phone)
803-777-3609 (Fax)
Dev R. Mishra
University of Saskatchewan - Edwards School of Business ( email )
Department of Finance and Management Science
Saskatoon, Saskatchewan S7N 5A7
Canada
306-966-8457 (Phone)
306-966-2515 (Fax)
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