Corporate social responsibility and firm financing decisions: A literature review

During the last few decades, multinational enterprises have become more involved in socially responsible activities to meet their stakeholders’ expectations. The literature on the financial implications of high CSR firms has evolved and covered a wide variety of topics. This paper presents a literature review on studies that focus on the link between CSR and firms’ financing decisions worldwide. First, we show from prior literature that high CSR involvement firms disclose more information, which results in a negative relationship between CSR and information asymmetry. Second, studies on the cost of capital provide evidence that the cost of equity is lower for firms with high CSR scores, and that the premium associated with CSR for private loans is not significant or is significant but marginal. Third, our literature review argues that high CSR firms prefer equity over debt because of the low cost of equity they enjoy. The conclusion discusses future research on the field from a multinational perspective.