The nexus between corporate environment, social, and governance performance and cost of capital: evidence from top global tech leaders

Abstract

<p class="first" id="d8095308e139">The nexus between corporate environment, social, and governance (ESG) performance and the consequent financial performance have been extensively explored in the literature. However, little is known whether the investment in ESG endeavors has any implication for the cost of capital of an enterprise. The present study investigates the impact of ESG performance of top global technology leading firms on their cost of capital. Panel data fixed effects and random effects and generalized method of moment (GMM) regression estimation techniques have been applied to ascertain this relationship during a period of eight years (2010-2017). For a deeper insight, we segregate the cost of capital into the cost of equity and cost of debt. The empirical outcomes reveal that ESG performance is positively associated with both measures of the cost of capital i.e., cost of equity and cost of debt. It suggests that socially responsible top global technology leaders bear a higher cost of capital as investors perceive ESG as an additional financial burden and do not treat ESG costs as a value-added factor. Hence, corporate managers shall rationalize investment in ESG undertakings to curtail their cost of capital. Based on these findings, the policy prescriptions are discussed for the concerned stakeholders. </p>