Corporate Social Responsibility Disclosure Level, External Assurance and Cost of Equity Capital

Abstract

This study analyzes whether corporate social responsibility (CSR) report characteristics, including CSR disclosure level and the external assurance of CSR disclosures, explain variation in cost of equity capital for CSR disclosers. Using firms’ CSR disclosure levels as declared in accordance with the Global Reporting Initiative’s Sustainability Reporting Guidelines, I find that firms with the highest CSR disclosure levels have significantly lower cost of equity capital than firms with the lowest CSR disclosure levels. I also find that firms that opt to obtain external assurance of their CSR disclosures have significantly lower cost of equity capital than firms that do not. Further, I find some evidence that a large increase (decrease) in CSR disclosure level is associated with a subsequent decrease (increase) in cost of equity capital.