Study On The Relationship Of Quality Of Corporate Social Responsibility Disclosure And Cost Of Equity Capital

This article reviews the literature on corporate social responsibility(thereafter,CSR)disclosure,analyzes the mechanism between the two from the perspectives of stakeholder theory,information asymmetry theory,as well as signal transfer theory.On the basis of extant literature,I put forward the hypothesis:the quality of CSR disclosure is negatively associated with the cost of equity capital.Since there is no uniform standard for the quality of CSR report,this paper builds a sound and feasible CSR report quality evaluation system to proxy the quality of CSR reporting.This system take CSR reporting quality as the starting point,combined with corporate social responsibility reports' characteristics.The quality evaluation system including completeness,reliability,comparability,dichotomy,readability as five first-level indicators as well as fifteen secondary indicators.I use entropy method to give weight to the indicators,and the reliability of the evaluation system is tested by the Kendall W harmony coefficient.The CSR evaluation system is objective and applicable.Meanwhile,I use PEG valuation method to measure the cost of equity capital.In order to exam the relationship between the quality of CSR disclosure and the capital cost of equity,I select 103 Chinese listed firms with 309 consecutive CSR report from 2013 to2015 as sample.The empirical results imply that:(1)Currently,the quality of CSR disclosure is low,and the CSR performance of our sample are varied.(2)The quality of the corporate social responsibility report is negatively related to the capital cost of equity;(3)CSR performance is correlated with both CSR reporting and cost of equity capital.The negative relationship between CSR disclosure quality and the cost of equity capital is more pronunced for firms with better CSR performance.This paper enrich the research on cost of equity as well as providing new evidence to improve the CSR disclosure quality.