Mechanism Of Social Responsibility Performance Influencing On Cost Of Equity Capital:

The economic consequences caused by fulfilling social responsibility have been hot topics in the field of research on CSR,and past studies mostly focus on the relationship between CSR and economic performance.However,in recent years,with the development of stakeholder theory,the effect of CSR on the corporation's financial activities such as investment,financing and disclosure become a new trend in the research on CSR.Since the happening of "substandard milk power" incident for SANLU,many pernicious events for violating CSR are emerging constantly in China,which has got more and more attentions from the whole society.In order to improve the cognition to CSR for investor and company,the government implemented many related regulations.Then in these conditions,whether the corporations with better social responsibility performance can attract more investors and win financing superiority in the capital market is a realistic question concerned by the goverment and the company itself.Considering the business risks and the information risks are important factors to decide the equity cost,this paper chooses these two risks as perspectives to explore how social responsibility fulfillment to influence the cost of equity,and makes further analyses combined with the economic conditions and the capital market characters in China.These researches are expected to reveal the economic consequences for social responsibility fulfillment from the perspectives of risk and equity cost,which will expand the corporations' view to CSR and will also provide more sufficient empirical evidence for the formulation and perfection of social responsibility regulations in our country.Enclosing the clue from social responsibility performance along business risks and information risks,then to the cost of equity,the contents in this research include four aspects as follows.Firstly,the effect of social responsibility fulfillment on the cost of equity was studied.The results show that social responsibility performance is a factor that can affect the pricing to the equity for investor in capital market,and there is a risk premium to the social responsibility.It is also found that undertaking CSR actively can contribute to reduce the cost of equity,which is assured after considering the endogeneity.In addition,the reduction effect on the cost of equity for CSR is more obvious for the corporation with serious pollution compared to other industries.Secondly,the effect of social responsibility fulfillment on business risks was studied.The results show that the social responsibility performance is negatively associated with the level of firm's business risks,which means that undertaking more social responsibility for the corporations in China can reduce its business risks,and risk reducing hypothesis not increasing hypothesis is supported.In addition,in the period of downside for China'macro-economy which caused mainly by the outbreak of the global financial crisis in 2008,the companies which show much better performance on social responsibility have less volatility in their operation,which means the fulfillment of social responsibility actively can better protect the corporations from the negative shock caused by the crisis,and reduce its business risks much more.Thirdly,the effect of social responsibility fulfillment on information risks was studied.The results show that as a whole,the corporation with better social performance in the capital market of our country will disclose more voluntary information with higher quality,and the quality of its accounting information is also better,which means the information risks for the corporation with better social performance are much lower,and the active fulfillment of social responsibility can reduce the firm's information risks.Further analysis shows that the motivation to refinance will not change the active effect of CSR on information risks.Finally,the mediated effects about business risks and information risks in the relationship between social responsibility fulfillment and the cost of equity were studied.The results show that both business risks and information risks are mediated variables between social responsibility fulfillment and the cost of equity,and can play mediated effects,which means undertaking social responsibility actively for the corporation can reduce its equity cost by decreasing its business risks and information risks.However,the mediated effect of business risks is much more than the one of information risks.The innovations of this research are as follows.Firstly,the relationship between CSR and equity cost which has been divergent to the research conclusions at present is analyzed systematically from two aspects of CSR superiority hypothesis and CSR inferiority hypothesis.Secondly,the active influences of social responsibility fulfillment on equity cost in capital market of China are verified more comprehensively,which also supplements and tests CSR superiority hypothesis.Thirdly,using path analysis method for the first time,the mechanism of undertaking social responsibility on equity cost is revealed through the pathes of business risks and information risks and tested systemically.Fourthly,the research perspective about the economic consequence of CSR is expanded to business risks and information risks,and the active effects of better CSP on the firm's business risks and information risks are revealed too.