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Cost of equity and corporate social responsibility for environmental sensitive industries: Evidence from international pharmaceutical and chemical firms

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  • Yang, Ann Shawing
  • Yulianto, Fritz Andryan

Abstract

We analyze the relationship between the cost of equity and corporate social responsibility activities (CSR) of international environment-sensitive industries for the study period from 2008 to 2019. The capital-market equilibrium and affect-as-information theories are applied. Results show chemical firms have lower equity financing costs via CSR performance than pharmaceutical firms. Particularly, social performance has the lowest cost of equity, followed by environmental performance. Although investors judge both industries through similar long-term growth opportunities, chemical firms have greater risks and lower leverage and book-to-market ratios than their counterparts. Size significantly lowers financing costs for pharmaceutical firms in environmental and social categories.

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  • Yang, Ann Shawing & Yulianto, Fritz Andryan, 2022. "Cost of equity and corporate social responsibility for environmental sensitive industries: Evidence from international pharmaceutical and chemical firms," Finance Research Letters, Elsevier, vol. 47(PA).
    • Handle: RePEc:eee:finlet:v:47:y:2022:i:pa:s1544612321004967
    DOI: 10.1016/j.frl.2021.102532
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    More about this item

    Keywords

    Cost of equity; Corporate social responsibility; Environment-sensitive industries; Capital-market equilibrium theory; Affect-as-information theory JEL classifications: C33; C36; G31; L65; L69; M14;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics
    • L69 - Industrial Organization - - Industry Studies: Manufacturing - - - Other
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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