Corporate Social Irresponsibility and the Cost of Equity Capital: Evidence from Listed Firms in China

Feifei Liu; Chengchun Li; Sailesh Tanna; Da Teng

doi:10.1142/S0217590825500201

Corporate Social Irresponsibility and the Cost of Equity Capital: Evidence from Listed Firms in China

Feifei Liu
, Chengchun Li
, Sailesh Tanna
, Da Teng

Changshu Institute of Technology
Beijing University of Chemical Technology

Research output: Contribution to journal › Article › peer-review

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Abstract

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.

Original language	English
Pages (from-to)	(In-Press)
Journal	Singapore Economic Review
Volume	(In-Press)
Early online date	11 Jun 2025
DOIs	https://doi.org/10.1142/S0217590825500201
Publication status	E-pub ahead of print - 11 Jun 2025

Bibliographical note

Publisher Copyright:
© 2025 World Scientific Publishing Company.
Copyright © and Moral Rights are retained by the author(s) and/ or other copyright owners. A copy can be downloaded for personal non-commercial research or study, without prior permission or charge. This item cannot be reproduced or quoted extensively from without first obtaining permission in writing from the copyright holder(s). The content must not be changed in any way or sold commercially in any format or medium without the formal permission of the copyright holders.

This document is the accepted manuscript, incorporating any revisions agreed during the peer-review process. Some differences between the published version and this version may remain and you are advised to consult the published version if you wish to cite from it.

Keywords

Corporate social irresponsibility
Cost of equiy capital
Risk
Governance
China

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10.1142/S0217590825500201

Tanna2025AAMAccepted author manuscript, 753 KB

Cite this

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abstract = "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. ",

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N1 - Publisher Copyright: © 2025 World Scientific Publishing Company. Copyright © and Moral Rights are retained by the author(s) and/ or other copyright owners. A copy can be downloaded for personal non-commercial research or study, without prior permission or charge. This item cannot be reproduced or quoted extensively from without first obtaining permission in writing from the copyright holder(s). The content must not be changed in any way or sold commercially in any format or medium without the formal permission of the copyright holders. This document is the accepted manuscript, incorporating any revisions agreed during the peer-review process. Some differences between the published version and this version may remain and you are advised to consult the published version if you wish to cite from it.

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N2 - 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.

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Corporate Social Irresponsibility and the Cost of Equity Capital: Evidence from Listed Firms in China

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