Accounting Perspective of Corporate Social Responsibility: Implications on Banks’ Cost of Capital

Abstract

The disclosure practices of firms may send strong signals to investors thus influencing their perceptions of the company’s risk and ethical standing and this potentially affects the company’s cost of capital. This study therefore examined the effect of corporate social responsibility disclosures on the cost of equity of listed deposit money banks in Nigeria. The research design adopted for this study was ex post facto and secondary data were used. The population of this study consisted of 13 deposit money banks and the sample size of this study was 11 purposively selected banks. The ordinary least square regression analysis was employed in analysing the data and the statistical package employed was E-views version 14. The findings of this study revealed that customer disclosures have a significant positive effect on the cost of equity; environmental responsibility disclosures have a positive but not statistically significant effect on the cost of equity while indigenous venture support disclosures have a significant negative effect on the cost of equity of listed deposit money banks in Nigeria. Based on the above findings, it was concluded that corporate social responsibility disclosures have a significant effect on the cost of equity of listed deposit banks in Nigeria. It was therefore recommended among others that management of deposit money banks should actively seek opportunities to engage with and support local entrepreneurs and transparently disclose these practices as investors are attracted to sustainable and eco-friendly firms thus reducing their risk premium in the cost of capital.