Can Investing in Corporate Social Responsibility Lower a Company’s Cost of Capital?

23 Pages Posted: 5 Oct 2012

See all articles by Marcelo Cajias

Marcelo Cajias

PATRIZIA AG; Universität Regensburg

Franz Fuerst

University of Cambridge - Department of Land Economy; University of Melbourne; City University of New York - Center for Urban Research

Sven Bienert

University of Regensburg - International Real Estate Business School (IREBS)

Date Written: October 4, 2012

Abstract

This paper investigates the effect of corporate social responsibility (CSR) ratings on the ex ante cost of capital of more than 2300 listed US companies in a panel from 2003 to 2010. It examines if financial markets value continuous investment in corporate social responsibility activities through higher market capitalization and lower cost of capital. We show that firms' sustainability strategy varies across industry sectors, whereas customer-orientated companies like telecommunications or automobile outperform asset-driven sectors such as real estate or chemical companies. Furthermore, we predict a 10-bp positive effect for one standard deviation of firms' intensive allocation of resources in sustainable activities. Managers of companies with a low or intermediate CSR score may consider improving their performance. A good starting point is usually to draw up a companywide CSR agenda, possibly guided by a dedicated CSR task force. In addition, by improving their CSR ratings a company may get access to additional resources, ranging from the growing ethical investment industry to that part of the labor force for whom CSR performance matters when choosing an employer.

Keywords: Corporate Social Responsibility, Sustainability, Cost of Capital, Quantile Regression

JEL Classification: G32, M14

Suggested Citation

Cajias, Marcelo and Fuerst, Franz and Bienert, Sven, Can Investing in Corporate Social Responsibility Lower a Company’s Cost of Capital? (October 4, 2012). Available at SSRN: https://ssrn.com/abstract=2157184 or http://dx.doi.org/10.2139/ssrn.2157184

Marcelo Cajias

PATRIZIA AG ( email )

Fuggerstr. 26
Augsburg, 86150
Germany
+49 (0) 151 17215198 (Phone)

HOME PAGE: http://www.patrizia.ag

Universität Regensburg ( email )

93040 Regensburg
D-93040 Regensburg, 93053
Germany

Franz Fuerst (Contact Author)

University of Cambridge - Department of Land Economy ( email )

19 Silver Street
Cambridge, CB3 9EP
United Kingdom

HOME PAGE: http://www.landecon.cam.ac.uk/directory/dr-franz-fuerst

University of Melbourne ( email )

185 Pelham Street
Carlton, Victoria 3053
Australia

City University of New York - Center for Urban Research

CUNY The Graduate Center
New York, NY 10011
United States

Sven Bienert

University of Regensburg - International Real Estate Business School (IREBS) ( email )

Universitaetsstrasse 31
Regenburg, Bavaria 93040
Germany

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