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|Title: ||The impact of corporate social and environmental practices on the cost of equity capital: UK evidence|
|Authors: ||Eliwa, Yasser|
Cost of equity capital
|Issue Date: ||2018|
|Citation: ||ELIWA, Y., AHMED, A. and POWER, D., 2018. The impact of corporate social and environmental practices on the cost of equity capital: UK evidence. International Journal of Accounting and Information Management, [in press].|
|Abstract: ||Purpose – There has been an ongoing call from various groups of stakeholders for social and environmental practices to be integrated into companies’ operations. A number of companies have responded by engaging in socially and environmentally responsible activities, while others choose not to participate in these activities, which incur additional costs. The absence of consensus regarding the economic implications of social and environmental practices provides the impetus for this paper. This study aims to examine the association between corporate social and environmental practices (CSEP) and the cost of equity capital measured by four ex-ante measures using a sample of UK listed companies.
Design/methodology/approach – First, a review of the extant literature on CSEP is undertaken. Second, using a sample of 236 companies surveyed in ‘Britain’s Most Admired Companies’ (BMAC) in terms of ‘Community and Environmental Responsibility’ during the period 2010-2014, four implied cost of equity capital proxies are estimated. The relationship between a company’s cost of equity capital and its CSEP is then calculated. Findings – We find evidence that companies with higher levels of CSEP have a lower cost of equity capital. This finding determines the significant role played by CSEP to help users to make useful decisions. Also, it supports arguments that firms with socially responsible practices have lower risk and higher valuation. Practical Implications – The finding encourages companies to be more socially and environmentally responsible. Furthermore, it provides up-to-date evidence of the economic consequences of CSEP. The results should, therefore, be of interest to managers, regulators and standard-setters charged with developing regulations to control CSEP, as these practices are still voluntary in nature by companies. Originality/value – To the best of authors’ knowledge, this is the first study to investigate the association between CSEP of British companies and their cost of equity capital. Our study complements Ghoul et al. (2011), who examine the relationship between CSR and the cost of equity capital of US sample. We extend Ghoul et al. (2011) by using a sample of UK market after applying IFRS.|
|Description: ||This paper is closed access until it is published.|
|Version: ||Accepted for publication|
|Publisher Link: ||https://doi.org/10.1108/IJAIM-11-2017-0141|
|Appears in Collections:||Closed Access (Business)|
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