The Relation between Corporate Social Responsibility and Cost of Equity Capital of Firms Listed in Tehran Stock Exchange

Abstract

This paper examines the relation between corporate social responsibility and cost of equity capital of firms listed in Tehran Stock Exchange. In order to measure social responsibility as the independent variable of the study, the social and environmental criteria, which are used annually by the American institution known as KLD to rate the organizations, and also in order to measure cost of equity capital, the Gordon model have been used. All the listed firms in Tehran Stock Exchange as the population of the study have been analyzed, and 65 of them have been chosen according to the features of this study. The findings show that there is a significant inverse relationship between social responsibility and cost of equity capital. Therefore, managers, by increasing disclosure of social performance, cause decreases in the expected rate of return to investor (cost of equity capital) and the financial expenses. In other words, information on corporate social responsibility provides the investors with informative content.

Keywords

• Corporate Social Responsibility
• Cost of Equity Capital
• expected rate of return to investor