Relative Corporate Social Performance and Cost of Equity Capital: International Evidence

Seminar abstract

This research examines the relationship between firms’ Corporate Social Performance (CSP) and the implied cost of equity capital using a sample of 25,938 firm-year observation from 49 countries during the period from 2002 to 2021. Using estimates of the firms’ ex ante cost of equity capital, we examine its relationship with industry-relative measures of the firms’ corporate social performance (CSP), its environmental and social pillars and sub-pillars. We find that increased overall CSP reduces a firm’s cost of equity capital up until a point, beyond which the marginal benefits of further CSP investment decrease. We find that the social pillar is the main driver of the reductions in cost of capital, in particular a firm’s performance in relation to is workforce, and that higher performance is increasingly rewarded with a lower cost of capital. Finally, we find that this relationship differs depending on the institutional context, with greater reductions in the cost of capital evident in countries with stronger institutional environments.

How to attend this seminar

This seminar will be held online on Wednesday 22 February 2023 at 2pm.

It is free to attend and we ask that you please contact Dr Anna Sarkisyan for details on how to join us.

Speaker bio

Dr Martha O'Hagan

Martha O’Hagan is an Associate Professor and Director of the MSc Finance in Trinity Business School. Her research is in the area of Behavioural Finance, Entrepreneurship and Sustainable Finance. Prior to completing her PhD she worked in Investment Banking in London and Dublin in derivatives and financial engineering. She has received multiple teaching awards including the Trinity Teaching Excellence Award and Teaching Hero Award. She received an Irish Research Council Laureate Award in May 2022 for a 4 year research project in Sustainable Finance and is also a collaborator on FOREST, an interdisciplinary research project on forestry in Ireland, specifically investigating the financial and behavioural incentives for afforestation in Ireland.