Voluntary Non-Financial Disclosure and the Cost of Equity Capital: The Case of Corporate Social Responsibility Reporting

We examine a potential benefit associated with the voluntary reporting of corporate social responsibility performance, a reduction in firms' cost of equity capital. We find that firms with high cost of equity capital tend to release corporate social responsibility reports and that reporting firms with relatively superior social responsibility performance enjoy a reduction in the cost of equity capital. Further, reporting firms with superior social responsibility performance attract dedicated institutional investors and analyst coverage. Superior social responsibility performance also serves to reduce forecast errors and dispersion. Finally, firms appear to exploit the benefit of a reduction in the cost of equity capital associated with social responsibility reporting: Reporting firms are more likely than non-reporting firms to raise equity capital in the two years following the reporting and among firms raising equity capital, reporting firms raise a significantly larger amount than non-reporting firms.