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

2010/09/10 by Dan S. Dhaliwal, Oliver Zhen Li, Albert Tsang +2 · 51 citations
Business, Management and Accounting · #Auditing, Earnings Management, Governance #Corporate Finance and Governance #Corporate Social Responsibility Reporting

paper · doi:10.2308/accr.00000005

Abstract

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; among firms raising equity capital, initiating firms raise a significantly larger amount than do non-initiating firms.

Citations

• Corporate Disclosure Policy and Analyst Behavior.
• Disclosure level and the cost of equity capital.

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Related

• Corporate social responsibility and access to finance
• Do Markets Punish or Reward Corporate Social Responsibility Decoupling?
• Disclosure level and the cost of equity capital.
• Non-financial information and cost of equity capital: an empirical analysis in the food and beverage industry
• Nonfinancial Disclosure and Analyst Forecast Accuracy: International Evidence on Corporate Social Responsibility Disclosure