CORPORATE SOCIAL IRRESPONSIBILITY AND THE COST OF EQUITY CAPITAL: EVIDENCE FROM LISTED FIRMS IN CHINA

This paper studies the association between corporate social irresponsibility (CSI) and the cost of equity capital in China. Using a sample of 180 firms listed on the main board of the Shenzhen Stock Exchange over the period 2013–2018, we identify and measure the extent of corporate misconduct among these firms by creating an index of CSI activity relating to their environmental, social and governance characteristics. We then test the impact of CSI on their cost of equity capital. Our results reveal that higher CSI activities of firms raise their cost of equity financing, although this positive relationship between CSI and the cost of equity capital is shaped by the firms’ systematic risks and the institutional environment in which the firms operate.