The Effect of Corporate Social Responsibility on Cost of Equity and Dept

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The purpose of this study is to investigate the effect of Corporate Social Responsibility (CSR) disclosure on the cost of equity (COE) and debt (COD). The relationship between Corporate Social Responsibility and the cost of equity has been discussed extensively in the literature. However, there is a lack in the debt literature despite its extensive market size. Accordingly, the findings of this study contribute directly to the body of literature by filling this knowledge gap. The effect of Corporate Social Responsibility on the cost of capital is investigated by deploying the terms of information asymmetry and risk reduction and through the interpretation of agency, legitimacy and signaling theory. Building upon the current state of knowledge, the findings suggest that Corporate Social Responsibility disclosure has a significant negative association with both the cost of equity and the cost of debt. The findings of the study suggest that the interest in Corporate Social Responsibility disclosure is not limited to the equity market but also includes the credit market. The main aspiration of the study is to encourage the adoption of the socially responsible behavior and reporting. Besides that, these findings suggest useful implications for management, investors, rating agencies, the government and other parties that are interested in transparency and risk management. Keywords: Corporate Social Responsibility (CSR), cost of equity (COE), cost of debt (COD), information asymmetry, risk, transparency
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