Cost of equity and corporate social responsibility for environmental sensitive industries: Evidence from international pharmaceutical and chemical firms

We analyze the relationship between the cost of equity and corporate social responsibility activities (CSR) of international environment-sensitive industries for the study period from 2008 to 2019. The capital-market equilibrium and affect-as-information theories are applied. Results show chemical firms have lower equity financing costs via CSR performance than pharmaceutical firms. Particularly, social performance has the lowest cost of equity, followed by environmental performance. Although investors judge both industries through similar long-term growth opportunities, chemical firms have greater risks and lower leverage and book-to-market ratios than their counterparts. Size significantly lowers financing costs for pharmaceutical firms in environmental and social categories.