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CSR and cost of capital: evidence from Japan

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  • Megumi Suto
  • Hitoshi Takehara

Abstract

Purpose - This study aims to examine the link between corporate social performance (CSP) and the cost of capital of Japanese firms in 2008-2013, considering the influences of banking relationships and ownership structure. Design/methodology/approach - It examines the relation between CSP and the cost of capital in terms of the cost of debt, cost of equity and weighted average cost of capital, using a composite CSP measure based on stakeholder relationships. A regression model is adopted, controlling for bank dependency, ownership structure and firm-specific attributes. Findings - Institutional ownership influences the CSP–cost of equity relation and reduces the cost of equity, while CSP is perceived by debtors as not information-mitigating for the observed period. For 2008-2010, the relation between CSP and bank dependency increases the cost of debt; however, the positive influence of bank dependency on the cost of debt dilutes during 2010-2013 as the shift to a more market-oriented financial market in Japan occurs. Practical implications - Although bank borrowing is important, especially for small firms, non-financial disclosure makes external financing more flexible. Institutional investors concerned about the non-financial aspects of business, therefore, play an important role in mitigating the information asymmetry that exists in the capital market. Originality/value - This study extends research on the CSP–cost of capital link by considering structural changes in financial systems (e.g. capital market perception of CSP and banks as delegated monitors).

Suggested Citation

  • Megumi Suto & Hitoshi Takehara, 2017. "CSR and cost of capital: evidence from Japan," Social Responsibility Journal, Emerald Group Publishing Limited, vol. 13(4), pages 798-816, October.
    • Handle: RePEc:eme:srjpps:srj-10-2016-0170
    DOI: 10.1108/SRJ-10-2016-0170
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    Citations

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    Cited by:

    1. Prasad, Krishna & Kumar, Satish & Devji, Shridev & Lim, Weng Marc & Prabhu, Nandan & Moodbidri, Sudhir, 2022. "Corporate social responsibility and cost of capital: The moderating role of policy intervention," Research in International Business and Finance, Elsevier, vol. 60(C).
    2. Khan, Muhammad Arif & Khan, Ashraf & Hassan, M. Kabir & Maraghini, Maria Pia, 2024. "Market response to environmental social and governance performance: A global analysis," Research in International Business and Finance, Elsevier, vol. 67(PA).
    3. Al-Fakir Al Rabab'a, Eltayyeb & Rashid, Afzalur & Shams, Syed, 2023. "Corporate carbon performance and cost of debt: Evidence from Asia-Pacific countries," International Review of Financial Analysis, Elsevier, vol. 88(C).
    4. Agnieszka Piechocka-Kaluzna & Agnieszka Tluczak & Pawel Lopatka, 2021. "The Impact of CSR/ESG on the Cost of Capital: A Case Study of US Companies," European Research Studies Journal, European Research Studies Journal, vol. 0(Special 3), pages 536-546.
    5. Jaehong Lee, 2022. "Voluntary Disclosure of Carbon Emissions Information, Managerial Ability, and Credit Ratings," Sustainability, MDPI, vol. 14(12), pages 1-13, June.
    6. Nejla Ould Daoud Ellili, 2020. "Environmental, Social, and Governance Disclosure, Ownership Structure and Cost of Capital: Evidence from the UAE," Sustainability, MDPI, vol. 12(18), pages 1-23, September.
    7. Yadav, Sandeep & Srivastava, Jagriti, 2021. "CSR, audit quality and firm performance during COVID-19: an organizational legitimacy perspective," MPRA Paper 108967, University Library of Munich, Germany.
    8. Imen Khanchel & Naima Lassoued, 2022. "ESG Disclosure and the Cost of Capital: Is There a Ratcheting Effect over Time?," Sustainability, MDPI, vol. 14(15), pages 1-19, July.
    9. Kiran Fatima & Habiba Azam & Fiaz Ahmad Sulehri & Syeda Ambreen Fatima Bukhari & Hafiz Khalique Ur Rehman Virk & Yunjiang Geng & Marc Audi & Muhammad Saleem Ashraf, 2024. "Sustainability Disclosures and Their Influence on Cost of Capital: A Comprehensive Bibliometric Study," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 13(2), pages 799-810.
    10. Nejla Ould Daoud Ellili, 2022. "Impact of environmental, social and governance disclosure on dividend policy: What is the role of corporate governance? Evidence from an emerging market," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 29(5), pages 1396-1413, September.

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