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

57 Pages Posted: 26 Feb 2015 Last revised: 23 Sep 2018

See all articles by Wolfgang Breuer

Wolfgang Breuer

RWTH Aachen University

Torbjörn Müller

RWTH Aachen University - Department of Finance

David Rosenbach

RWTH Aachen University - Department of Finance

Astrid Juliane Salzmann

Catholic University of Lille - IESEG School of Management; RWTH Aachen University - Department of Finance

Date Written: September 13, 2018

Abstract

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.

Keywords: Agency Theory, Corporate Social Responsibility, Cost of Equity, Investor Protection, Stakeholder Theory

JEL Classification: G32, G34, L2, M14

Suggested Citation

Breuer, Wolfgang and Müller, Torbjörn and Rosenbach, David and Salzmann, Astrid Juliane, Corporate Social Responsibility, Investor Protection, and Cost of Equity: A Cross-Country Comparison (September 13, 2018). Journal of Banking and Finance, Vol. 96, 2018, Available at SSRN: https://ssrn.com/abstract=2569557 or http://dx.doi.org/10.2139/ssrn.2569557

Wolfgang Breuer

RWTH Aachen University ( email )

Templergraben 55
D-52056 Aachen, 52056
Germany

Torbjörn Müller

RWTH Aachen University - Department of Finance ( email )

Templergraben 64
Aachen, 52056
Germany

David Rosenbach (Contact Author)

RWTH Aachen University - Department of Finance ( email )

Templergraben 64
Aachen, 52056
Germany

Astrid Juliane Salzmann

Catholic University of Lille - IESEG School of Management ( email )

Socle de la Grande Arche
1 Parvis de la Defense
Puteaux, Paris 92800
France

RWTH Aachen University - Department of Finance ( email )

Templergraben 64
Aachen, 52056
Germany

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