Corporate social responsibility disclosure level, external assurance and cost of equity capital
Journal of Financial Reporting and Accounting
ISSN: 1985-2517
Article publication date: 3 December 2018
Abstract
Purpose
This study aims to analyze whether corporate social responsibility (CSR) report characteristics, including disclosure level and external assurance, and reporting firms’ CSR performance, explain variation in cost of equity capital among CSR disclosers.
Design/methodology/approach
The study uses a propensity score matched sample of CSR reports prepared according to the Global Reporting Initiative’s (GRI) G3/G3.1 Reporting Guidelines.
Findings
Overall, there does not appear to be a difference in cost of equity capital among CSR disclosers based on GRI disclosure level. The exception is for poor CSR performers reporting at the highest GRI disclosure levels, but not obtaining assurance. These firms may be suspected of greenwash and therefore have higher cost of equity capital than the reference group. Poor CSR performers, especially those reporting at the highest GRI disclosure levels, obtain the greatest cost of equity capital benefit associated with external assurance.
Originality/value
This study contributes to the literature by showing that the cost of equity capital benefits associated with CSR disclosure and assurance do not accrue equally to all CSR disclosers. Specifically, this study is the first to provide empirical evidence of the cost of equity capital consequences of suspected greenwashing and empirically demonstrate the role of external assurance in mitigating greenwashing concerns among poor performers.
Keywords
Acknowledgements
The author is grateful for the support of her dissertation committee co-chairs, Alan Jagolinzer and Yonca Ertimur, and her other committee members, Steve Rock, Katherine Gunny and Naomi Soderstrom. She would also like to thank research seminar participants at University of Nevada, Reno; Western Washington University; Pacific Lutheran University; Fort Lewis College; and University of Northern Colorado for helpful feedback.
Citation
Weber, J.L. (2018), "Corporate social responsibility disclosure level, external assurance and cost of equity capital", Journal of Financial Reporting and Accounting, Vol. 16 No. 4, pp. 694-724. https://doi.org/10.1108/JFRA-12-2017-0112
Publisher
:Emerald Publishing Limited
Copyright © 2018, Emerald Publishing Limited