October 12, 2010

We received an interesting statistic today from Tracey Rembert at CERES about the benefits of voluntary disclosure of CSR.  She informed us that in the upcoming paper Voluntary Non-Financial Disclosure and the Cost of Equity Capital: The Initiation of Corporate Social Responsibility Reporting (The Accounting Review), it was found that reduction in the cost of equity capital could be a potential benefit of voluntarily reporting on CSR activities.

More specifically, it was found that the likelihood of firms voluntarily reporting on CSR activities is associated with a higher prior year cost of equity capital.  Firms with superior CSR performance to their peers have a reduction in the cost of their equity capital after issuing CSR reports, and these firms also attract more dedicated institutional investors and analyst coverage; these analysts in turn have lower absolute forecast errors and dispersion. 

Lastly, the paper found that these firms are more likely than non-disclosing firms to conduct SEOs to raise capital in the 2 years following the CSR disclosure.  These same firms raise significantly more equity capital than non-reporters.

These interesting statistics were taken from Voluntary Non-Financial Disclosure and the Cost of Equity Capital: The Initiation of Corporate Social Responsibility Reporting, which will run in the next issue of The Accounting Review.

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