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http://ssrn.com/abstract=1687155
 
 

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


Dan S. Dhaliwal


University of Arizona - Department of Accounting

Oliver Zhen Li


National University of Singapore

Albert Tsang


The Chinese University of Hong Kong (CUHK) - School of Accountancy

Yong George Yang


The Chinese University of Hong Kong (CUHK) - Faculty of Business Administration

October 4, 2010

Accounting Review, Vol. 86, No. 1, 2011

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

Keywords: Corporate Social Responsibility, Cost of Capital, Voluntary Disclosure

Accepted Paper Series


Not Available For Download

Date posted: October 5, 2010 ; Last revised: August 22, 2012

Suggested Citation

Dhaliwal, Dan S. and Li, Oliver Zhen and Tsang, Albert and Yang, Yong George, Voluntary Nonfinancial Disclosure and the Cost of Equity Capital: The Initiation of Corporate Social Responsibility Reporting (October 4, 2010). Accounting Review, Vol. 86, No. 1, 2011. Available at SSRN: http://ssrn.com/abstract=1687155 or http://dx.doi.org/10.2139/ssrn.1687155

Contact Information

Dan S. Dhaliwal
University of Arizona - Department of Accounting ( email )
McClelland Hall
PO Box 210108
Tucson, AZ 85721
United States
Oliver Zhen Li (Contact Author)
National University of Singapore ( email )
Department of Accounting
Singapore
Albert Tsang
The Chinese University of Hong Kong (CUHK) - School of Accountancy ( email )
Shatin, N.T.
Hong Kong
Yong George Yang
The Chinese University of Hong Kong (CUHK) - Faculty of Business Administration ( email )
Shatin, N.T.
Hong Kong
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