An Analysis of the Relationship Between CSR and Cost of Capital: Moderating Role of Mandatory CSR Disclosure

Abstract

The impact of CSR on the cost of capital across different countries differs due to their cultural and institutional aspects. In that scenario, studies exploring the relationship between CSR and the cost of capital are limited in emerging countries' contexts. Additionally, the nonlinearity in the relationship above needs to be explored, along with the role of CSR mandate in India. Hence, the study analyses the relationship between corporate social responsibility and the cost of capital of non-financial service sector firms listed in India and examines the moderating role of mandatory CSR disclosures in the said relationship. Based on the dataset of 215 non-financial service sector firms in India, the study found a positive direct impact of CSR on the cost of equity and a negative association between one-year lagged CSR value and the cost of debt. However, the study found no evidence for a non-linear relationship and moderating role of mandatory CSR on the cost of capital.