Corporate Social Responsibility and Firms’ Cost of Equity: How Does Culture Matter?

Abstract

Prior studies have established a link between corporate social responsibility (CSR) and cost of capital by coming to the conclusion that investing in CSR can generate future benefits for a firm. However, empirical support for this assertion has been mainly limited to the US market. We use an international sample, containing 48 countries from 2002-2013, to explain cross-country variations in the effects of CSR on cost of capital in different cultural contexts. We focus on the question of whether the relation between CSR and cost of equity is moderated by the culture of a society. We find that the decreasing effect of CSR on cost of equity is stronger in countries with lower levels of individualism, power distance, masculinity, uncertainty avoidance, and long-term orientation.