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Corporate social responsibility performance and the cost of capital in BRICS countries. The problem of selectivity using environmental, social and governance scores

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  • Paola Fandella
  • Bruno S. Sergi
  • Emiliano Sironi

Abstract

The paper aims to test whether corporate social responsibility (CSR) performance affects the costs of debt, equity, and a weighted average of those two components in BRICS countries. Theoretically, a decline in the cost of capital is linked to a decrease in the firm risk. We measure CSR performance using the environmental, social, and governance (ESG) combined score from the Thomson Reuters EIKON database for non‐financial enterprises between 2014 and 2019. A panel regression analysis has been run in order to test whether (1) the inclusion in the ESG combined ranking or (2) the level of the scores for ESG combines is linked to a decline in the cost of capital. Empirical evidence suggests that the level of the ESG combined score does not affect the firm's financial risk. Inclusion in the ESG combined index decreases the cost of equity and the average cost of capital instead. Firms that received an ESG combined score pay lower returns to investors.

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  • Paola Fandella & Bruno S. Sergi & Emiliano Sironi, 2023. "Corporate social responsibility performance and the cost of capital in BRICS countries. The problem of selectivity using environmental, social and governance scores," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(4), pages 1712-1722, July.
    • Handle: RePEc:wly:corsem:v:30:y:2023:i:4:p:1712-1722
    DOI: 10.1002/csr.2447
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    2. Duarte Alonso, Abel & Vu, Oanh Thi Kim & Nguyen, Trung Q. & McClelland, Robert & Nguyen, Ngan M. & Huynh, Hoa Thi Ngoc & Tran, Thanh Duc, 2024. "Industry 4.0 involvement and knowledge management across industries: A qualitative investigation from an emerging economy," Journal of Business Research, Elsevier, vol. 174(C).
    3. Wu, Zihao & Lin, Siliang & Chen, Tianhao & Luo, Chunyang & Xu, Hui, 2023. "Does effective corporate governance mitigate the negative effect of ESG controversies on firm value?," Economic Analysis and Policy, Elsevier, vol. 80(C), pages 1772-1793.
    4. Jyoti Dua & Anil Kumar Sharma, 2024. "Corporate Sustainability and Capital Costs: A Panel Evidence from BRICS Countries," Indian Journal of Corporate Governance, , vol. 17(1), pages 77-101, June.

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