Corporate Environmental Responsibility and the Cost of Capital: International Evidence
Journal of Business Ethics
53 Pages Posted: 25 Jul 2014 Last revised: 7 Mar 2023
Date Written: July 16, 2014
In this paper we examine how corporate environmental responsibility (CER) affects the cost of equity capital for manufacturing firms in 30 countries. Using several approaches to estimate firms’ ex ante equity financing costs, we find in regressions that control for firm-level characteristics as well as industry, year, and country effects that the cost of equity capital is lower when firms have higher CER. This finding is robust to addressing endogeneity through instrumental variables, to using alternative specifications and proxies for the cost of equity capital, to accounting for noise in analyst forecasts, and to employing alternative samples. We conclude that investment in CER reduces firms’ equity financing costs worldwide.
Keywords: Corporate environmental responsibility; Firm risk; Cost of equity capital
JEL Classification: G32; M14
Suggested Citation: Suggested Citation