Corporate Social Responsibility and Firms’ Cost of Equity: How Does Culture Matter?

Abstract

The paper examines the relationship between CSR and cost of equity in an in-ternational context assessing the moderating effect of culture on the relation between CSR and the cost of equity. We use an international sample of 42 countries, and company-level data from 2002-2013, to address cross-country variations in the effects of CSR on cost of equity in different cultural contexts. We first substantiate previous research and show that the more a company is engaged in CSR, the lower its cost of equity. We then find that the relationship between CSR and cost of equity is stronger in countries with lower levels of assertiveness and higher levels of humane orientation and institutional collectivism. Our study advances understanding of how national culture promote socially and environmentally responsible behavior. The implementation of CSR strategies depends on cultural norms, so companies need to be sensitive to local demands and adjust their CSR approaches accordingly.

Keywords: corporate social responsibility, ESG, national culture, cost of capital

JEL Classification: A13, G23, G32, M14