Corporate social responsibility and cost of capital: The moderating role of policy intervention

Corporate social responsibility (CSR) and cost of capital (COC) have been investigated in the past but not in tandem with policy intervention. This paper examines the impact of CSR on COC together with the policy intervention of mandatory CSR. This study uses a sample of 512 nonfinancial firms in India as a case and the costs of debt (COD) and equity (COE) as measures for COC. The findings indicate that (1) higher CSR performance decreases COD and increases COE and that (2) mandatory CSR legislation moderates their relationships such that it increases COD and COE. Therefore, consistent with signaling theory, we conclude that mandatory CSR spending signals a loss of discretionary power of CSR spending and signal intentionality and an implicit increase in agency costs.