El Ghoul, Guedhami, Kwok, and Mishra (2011)

El Ghoul, Sadok, Omrane Guedhami,  Chuck C.Y. Kwok, and Dev R. Mishra.  “Does Corporate Social Responsibility Affect the Cost of Capital?”  Journal of Banking & Finance, September 2011.

From the authors abstract:  "We examine the effect of corporate social responsibility (CSR) on the cost of equity capital for a large sample of U.S. firms. Using several approaches to estimate firms’ ex ante cost of equity, we find that firms with better CSR rankings exhibit cheaper equity financing. In particular, our findings suggest that investment in improving responsible employee relations, environmental policies, and product strategies contributes substantially to reducing firms’ cost of equity. Our results also show that participation in two “sin” industries, namely, tobacco and nuclear power, increases firms’ cost of equity. These findings support arguments in the literature that firms with socially responsible practices have higher valuation and lower risk."

LK comment:  Strong paper.  This paper won the 2011 Moskowitz Prize.

Link (working paper):  http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1546755

Link (published version): https://econpapers.repec.org/article/eeejbfina/v_3a35_3ay_3a2011_3ai_3a9_3ap_3a2388-2406.htm