A Study On The Corporate Environmental Responsibility And The Cost Of Capital-empirical Analysis Based On Legitimacy Theory

With the construction of ecological civilization being the basis for the construction of the "five-in-one" overall layout in the new era,environmental pollution control has gradually escalated into an important factor that threatens the development and even survival of enterprises.It is obvious that merely obeying the minimum standards of the environmental regulations cannot meet the requirements of high-quality economic development.Enterprises should take initiatives to carry out green industry upgrading.In the process of green industry upgrading,governmental financial subsidies play a limited role,social financing will be an important source for green industry upgrading.The green finance policy has guided the transfer of social capital allocation to green and clean projects from the upper policy-designed level,but the outcome of capital market serving the development of green industries is still unclear.Legitimacy is the prerequisite for the survival and development of a company.It serves as the bottom-line for investment decision-making for participants in the stock and bond markets.Corporate legitimacy from the environmental responsibility aspect has also become a trade-off factor for investors when investigating securities investment risks.Under the stimulus of macroeconomic policies for high-quality economic development,will the corporate legitimacy at the environmental level affect a firm's capital of costs?What is the mechanism of influence?The answers are the keys to whether Chinese enterprises can fundamentally change the circumstances of environmental responsibilities by optimizing the allocation of social funds to achieve green industry upgrading and high-quality development.According to current research on environmental responsibility,researchers mainly focus on the connotation of corporate environmental responsibility performance from the perspective of corporate management's fiduciary duty,corporate accountability perspective,legitimacy perspective,and strategic management perspective.According to the motivation and influencing factors of corporate environmental responsibility research,the external governmental pressure under the legitimate motive is the main reason for Chinese enterprises to take environmental responsibility.The overall status of corporate environmental responsibility among Chinese firms has neither descended to the ignorance of environmental issues,as influenced by neoclassical economics,nor has it generally risen to a level where firms consciously incorporate environmental responsibility into their strategies or even for the interests of general stakeholders.Therefore,discussing environmental responsibility from the perspective of corporate legitimacy is more in line with the current development of firms' environmental responsibility in China.In the research on corporate environmental responsibility from the perspective of legitimacy,the definition of firm legitimacy is mostly based on binary classification from the perspective of society as a whole.Neither does it take specific stakeholder in organizational field into consideration,nor does it mention the circumstance of transcending legitimacy,and the classification of legality is not only of great significance for promoting high-quality economic development in China,but also can make up for the lack of existing research on the differential impact of different contents of environmental responsibility.In addition,the institutional school and the strategic school in the legitimacy theory are controversial in the process of obtaining legitimacy.However,from a realistic point of view,companies not only need to confront the pressure of the regulative rules from the government,but also need to take subjective actions to seek legitimacy of its own.Therefore,the thoughts from two schools need to be integrated into a unified framework.Therefore,based on the perspective of legitimacy theory,this article takes the government as the main source of legitimacy for corporate environmental responsibility,enriches its connotation by grading legitimacy,and then explores the impact of environmental responsibility on firms' capital of costs.Based on the research method deduced from mechanism theory to empirical experience,this paper explores the logical path of literature combing-theoretical deduction-empirical test,using listed company data from the extractive industries(B),manufacturing(C)and electricity,gas,water production and supply industry(D),construction industry(E)in the A shares of Shanghai and Shenzhen stock exchanges.This paper takes in-depth attention to the mainstream financing channels of Chinese enterprises,which are also the current green financial policy forces,namely the bank credit market,the corporate bond market,and the equity capital market.Referring to the Legitimacy Theory,this article first explores the impact of the illegitimate state,merely-legitimate state and beyond-legitimate state of corporate environmental responsibility on bank loan costs,corporate bond financing costs and cost of equity.Second,the article discusses the impact of corporate environmental information disclosure quality on these three types of cost of capital,in order to exam the value relevance of corporate environmental information disclosure to investors' decision-making.On this basis,it explores the effect and mechanism of corporate legitimacy management through environmental information disclosure under the illegitimate state(ie,the comparison between the legitimacy management of "atonement purpose" and the legitimacy management of "green washing purpose").The research chapters are arranged as follows:Chapter One Introduction introduces the research background,research significance,research goals,research ideas,research framework and research methods adopted,as well as possible innovations in the research.Chapter Two Literature Review.Focusing on the research issues and research objectives,we review the literature on the concept of corporate environmental responsibility,the research on corporate environmental responsibility from the perspective of Legitimacy Theory,and the impact of corporate environmental responsibility on corporate value,financial performance and cost of capital.Chapter Three Theoretical basis and theoretical analysis,discussing the Legitimacy theory,Resource-based Theory,Risk Management Theory,Information Asymmetry Theory and Signaling theory,and integrating them into the analysis framework of the impact of environmental responsibility on the cost of capital It lays the foundation for the subsequent chapters.Chapter Four discusses the impact of the corporate environmental responsibility on bank loan costs under Legitimacy Theory,and the chapter further analyzes the moderating effects of private versus state ownership,mandatory versus voluntary environmental disclosure systems.Chapter Five The impact of corporate environmental responsibility on corporate bond financing costs under Legitimacy Theory,and further analyzes the moderating effects of corporate bond credit ratings,mandatory disclosure versus voluntary disclosure systems.Chapter Six The impact of the corporate environmental responsibility on the cost of equity under Legitimacy theory,and further analyzes the moderating effects of corporate political connections,mandatory disclosure versus voluntary disclosure systems.Chapter Seven Research conclusions and policy recommendations summarizes the three major research conclusions of this research,based on which enlightenment for policy formulation and business management are provided,and finally this chapter analyzes the limitations of the research and the prospects for future research.The main research conclusions and findings are as follows:Conclusion One:The higher the legitimate status of corporate environmental responsibility,the lower the cost of bank loan.Firstly,through the "Credit Risk Aversion effect" and the "Bank Green Reputation effect",compared with the mere-legitimate status companies,companies of illegitimate status not only perform worse in credit risk management,the illegitimate activities will also negatively affect the operating performance of their lending banks.In order to compensate for the credit risk from the borrowing companies and the bank's own operating risks,lending banks will require higher risk premiums from illegitimate-status companies.In addition,the green credit policy has alleviated the agency problem between commercial banks and borrowing firms.Compared with companies that are in mere-legitimate state,companies that exceed the legitimate state can obtain lower borrowing costs through the "Policy Dependency effect".Secondly,banks being private creditors have comparative advantages in obtaining information beforehand and monitoring afterwards,however,corporate environmental information is highly sensitive,therefore corporate environmental information disclosure still has value relevance in banks' decision-making.Thus,due to the information and monitoring advantages of commercial banks,the signaling effect of high-quality environmental information disclosure cannot be exerted,along with the strong pressure of green credit policies,borrowing firms cannot conduct legitimacy management by improving the quality of environmental disclosure.Further analysis finds that although state-owned enterprises have the comparative advantages of natural legitimacy and soft budget constraints,the negative relationship between beyond legitimate status and bank borrowing costs is not affected by the nature of firms' property rights,which indicates that the green credit policy can offer great helps to firms green industry upgrading both in state-owed entities and their counterparts..Finally,from the perspective of mandatory versus voluntary disclosure mechanisms,the negative impact of the corporate environmental information disclosure quality on bank borrowing costs is more pronounced under the mandatory disclosure mechanism.Conclusion Two:There is a significant negative correlation between the legitimate status of corporate environmental responsibility and the cost of corporate bond financing.Through the "Credit Risk Aversion effect",the cost of corporate bond financing for companies in illegitimate status is higher than that of companies in mere-legitimate status.In addition,through the "Corporate Reputation effect",firm of beyond-legitimate-status can obtain lower corporate bond financing costs,compared with firms of other legitimate status.Secondly,this article finds that although Chinese corporate bond issuance companies are mature listed companies with sound financial conditions and have a lower level of information asymmetry than European and American capital market bond-issuing companies,corporate environmental information disclosure can still provide a boost for corporate bond investment.On this basis,this article finds that companies can reduce the negative relationship between illegitimate status and corporate bond financing costs by improving the quality of environmental information disclosure.That is to say,the legitimacy management is effective in corporate bond financing.Further research found that the corporate bond debt rating has strengthened the negative relationship between beyond-legitimate status and corporate bond financing costs.Moreover,from the perspective of both mandatory and voluntary disclosure mechanisms,the improvement of the quality of environmental information disclosure has a more obvious effect on the reduction of corporate bond financing costs under the mandatory disclosure mechanism.Conclusion Three:There is a significant negative correlation between the legitimate status of corporate environmental responsibility and the cost of equity.Specifically,through the "Corporate risk Aversion effect" and the "Investor Base effect",illegitimate enterprises have a higher cost of equity than the mere-legitimate enterprises.In addition,through the"Long-term Competitive Advantage effect",although the financial performance of the investment in green innovation projects by companies of beyond-legitimate status has intertemporal characteristics,the risk diversification function and residual interests characteristics of equity investment make equity investors also reward companies that breach the "legitimacy threshold".Therefore,the cost of equity of companies that exceed the legitimate status has to be lower than that of companies that are in mere-legitimate status.Secondly,this chapter finds that environmental information disclosure has value relevance in equity investment decision-making,that is,as the quality of environmental information disclosure improves,the cost of equity becomes lower.On this basis,companies can reduce the negative relationship between illegitimate status and the cost of equity capital by improving environmental information disclosure as a legitimacy management method.Further research has found that political connections can strengthen the negative relationship between beyond-legitimate status and the cost of equity.Moreover,from the perspective of mandatory versus voluntary disclosure mechanisms,the mandatory disclosure mechanism strengthens the negative relation between environmental information disclosure quality and the cost of equity.The possible innovations that this dissertation seeks to achieve are as follows:First,the paper may deepen the research on economic consequences of environmental responsibility under Legitimacy Theory.Based on the legitimacy perspective,this paper studied the impact of different corporate environmental legitimacy status on firms' cost of capital,along with the effect of legitimacy management in financing activities.The efforts may supplement the available positive research papers which analyzing the corporate environment responsibilities from performance or information disclosure dimension exclusively.Second,the paper offers gradual classification research evidence of progressive dichotomy.Referring to MSCI KLD database,in order to study how the participants in capital market react to different levels of legitimacy status,the scope of the legitimate status of corporate environmental responsibility is extended based on the firm legitimacy from governmental source,ranging from illegitimate status to mere-legitimate and beyond-legitimate status.The results can provide evidence as to whether investors in the capital market can recognize the long-term value of environmental responsibility,and encourage companies to consciously incorporate environmental responsibility into the company's strategic planning and management control system.Third,the paper studies the economic consequences of important financial markets in multiple dimensions.Current researches mostly focus on single financial market,while the characteristics of banks,corporate bonds and stock market investors are different.This article analyzes the different influential mechanisms of corporate environmental risks on debt holders and equity investors in order to help companies coordinate environmental responsibilities with financing structure,for the purpose of obtaining lower costs of capital.