The Impact Of Corporate Social Responsibility Behavior On The Cost Of Equity Capital

In recent years, increasingly prominent issues such as environmental degradation, resource depletion, and labor protection brought a growing awareness of the importance of corporate social responsibility. Constantly emerging accidents like tainted milk, tainted pork, low-quality coal, the Songhua River pollution and oil explosions severely infringed the interests of consumers, workers and the public. State laws and regulations clearly require enterprises to fulfill their social responsibilities. Shanghai Stock Exchange and Shenzhen Stock Exchange had both published documents mandatory for some listed companies to disclose social responsibility report. To properly understand social responsibility, conscientiously fulfill it and disclose its fulfillment have become an inescapable responsibility for every corporate.Data show that in recent years, listed companies disclosing CSR reports have increased year by year. Is it a response to regulatory requirements or a spur from the heart? Many scholars focus on corporate social responsibility and financial performance relationship, examining the economic consequences of corporate socially responsible behavior. However, the inconsistent results of those studies have reached an impasse. A new perspective is in need to further understand the economic consequences and intrinsic motivation of corporate socially responsible behavior. Therefore, this study examines the effect of corporate social responsibility behavior on the cost of equity capital, providing a new perspective on the motivation of corporate social responsibility. Focusing on989A-share listed companies released social responsibility report in2010-2011, using Rankins CSR Ratings to measure corporate social responsibility, using both CAPM model and PEG model to estimate the cost of equity capital, our findings suggest that corporate social responsibility is negatively and significantly related to the cost of equity capital. These findings support our assumption that corporations conducting social responsibility would benefit a reduction in the cost of equity capital. We recommend that enterprises should conscientiously fulfill their social responsibilities, reduce equity financing costs, reduce financial risk and eventually create greater value for the enterprise.