Does Political Instability moderate the relationship between Corporate Social Responsibility (CSR) and Cost of Capital?

Abstract

Corporate social responsibility (CSR) is a theme of the decade. A few laws concerning corporate social responsibility have been formulated and promulgated the world, particularly in developing countries like Pakistan. The previous studies also illustrated many CSR issues among Pakistani firms. The present study test the association between CSR and cost of capital with moderating role of political instability. The present study contains corporate social responsibility (tax expenses, cost rate, asset liability ratio, dividend per share, interest coverage ratio) and cost of capital . Data were collected from the annual reports throughout 2013-2017 and 21 firms from the cement sector listed in the Pakistan stock exchange, out of which ten firms based on market capitalization rate have been selected. The theoretical framework of the current study is based on stakeholder and agency theories. CSR was measured as second order construct based on six dimensions; tax expenses, cost rate, asset liability ratio, dividend per share, interest coverage ratio. Cost of Capital was used as a proxy as a measure of the cost of capital. Political instability was used as a moderator, and data were gathered from “the World Bank indicators”. The current study utilized regression with the fixed and random model to meet the research goals. All the dimensions of CSR indicate a significant association with cost of capital. Political instability shows perfect moderation in the presence of political instability; all dimensions of corporate social responsibility suggest an insignificant relationship with.