Voluntary nonfinancial disclosure and the cost of equity capital: The initiation of corporate social responsibility reporting

Dan S. Dhaliwal, Oliver Zhen Li, Albert Tsang, Yong George Yang

Research output: Contribution to journalArticlepeer-review

1114 Scopus citations

Abstract

We examine a potential benefit associated with the initiation of voluntary disclosure of corporate social responsibility (CSR) activities: A reduction in firms' cost of equity capital. We find that firms with a high cost of equity capital in the previous year tend to initiate disclosure of CSR activities in the current year and that initiating firms with superior social responsibility performance enjoy a subsequent reduction in the cost of equity capital. Further, initiating firms with superior social responsibility performance attract dedicated institutional investors and analyst coverage. Moreover, these analysts achieve lower absolute forecast errors and dispersion. Finally, we find that firms exploit the benefit of a lower cost of equity capital associated with the initiation of CSR disclosure. Initiating firms are more likely than non-initiating firms to raise equity capital following the initiations; among firms raising equity capital, initiating firms raise a significantly larger amount than do non-initiating firms.

Original languageEnglish (US)
Pages (from-to)59-100
Number of pages42
JournalAccounting Review
Volume86
Issue number1
DOIs
StatePublished - Jan 1 2011

Keywords

  • Corporate social responsibility
  • Cost of capital
  • Voluntary disclosure

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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