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The linkage between CSR and cost of equity: an Indian perspective

The linkage between CSR and cost of equity: an Indian perspective This study aims to explore the relationship between corporate social responsibility (CSR) and the cost of equity (CoE) capital of Indian manufacturing firms.Design/methodology/approachThe study is conducted on a sample of 68 manufacturing firms listed on National Stock Exchange of India Limited (NSE) 200, investigated for the period 2013 to 2018. To deal with the issue of endogeneity, the techniques of system generalized method of moments and two-stage least square have been applied.FindingsThe results suggest that CSR disclosure is positively linked with the CoE in the case of manufacturing firms, signalling that socially responsible firms in India bear a higher CoE. The findings indicate that investors do not treat CSR as a value-augmenting factor.Practical implicationsFirms should effectuate effective managerial and organizational changes to fulfil their social responsibility instead of window dressing their activities. Regulators in India must work towards more stringent enforcement of the act and make efforts to promote public awareness of CSR.Social implicationsThe integration of CSR activities with the economic operations of the business is imperative.Originality/valueTo the best of researchers’ knowledge, there is a lack of studies focussing on India, which serves as an ideal setting for the study owing to the latest legislation mandating CSR expenditure. The study focusses on manufacturing firms as these firms are more susceptible to contribute to environmental pollution, exploitation of natural resources and labour concerns. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Sustainability Accounting, Management and Policy Journal Emerald Publishing

The linkage between CSR and cost of equity: an Indian perspective

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Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
2040-8021
DOI
10.1108/sampj-10-2019-0379
Publisher site
See Article on Publisher Site

Abstract

This study aims to explore the relationship between corporate social responsibility (CSR) and the cost of equity (CoE) capital of Indian manufacturing firms.Design/methodology/approachThe study is conducted on a sample of 68 manufacturing firms listed on National Stock Exchange of India Limited (NSE) 200, investigated for the period 2013 to 2018. To deal with the issue of endogeneity, the techniques of system generalized method of moments and two-stage least square have been applied.FindingsThe results suggest that CSR disclosure is positively linked with the CoE in the case of manufacturing firms, signalling that socially responsible firms in India bear a higher CoE. The findings indicate that investors do not treat CSR as a value-augmenting factor.Practical implicationsFirms should effectuate effective managerial and organizational changes to fulfil their social responsibility instead of window dressing their activities. Regulators in India must work towards more stringent enforcement of the act and make efforts to promote public awareness of CSR.Social implicationsThe integration of CSR activities with the economic operations of the business is imperative.Originality/valueTo the best of researchers’ knowledge, there is a lack of studies focussing on India, which serves as an ideal setting for the study owing to the latest legislation mandating CSR expenditure. The study focusses on manufacturing firms as these firms are more susceptible to contribute to environmental pollution, exploitation of natural resources and labour concerns.

Journal

Sustainability Accounting, Management and Policy JournalEmerald Publishing

Published: May 13, 2021

Keywords: Corporate social responsibility; ESG; Manufacturing; Cost of equity; System GMM; Two-stage least square

References