Dr. Rezaee Accepted for Publication in Journal of Corporate Finance
For release: August 18, 2015
Dr. Zabihollah "Zabi" Rezaee, professor of Accounting, has recently had his paper entitled "Business Sustainability Performance and Cost of Equity Capital" accepted for publication in Journal of Corporate Finance. His article was coauthored with Anthony Ng, Monash University in Australia.
This paper examined whether and how different components of economic sustainability disclosure (ECON), as well as environmental, social, and governance (ESG) dimensions of sustainability performance affect cost of equity, individually and in aggregate. Also investigated were whether and how ECON and ESG sustainability interactively affect cost of equity capital. Costs of equity were calculated using industry adjusted earnings-price ratios and finite horizon expected return model.
Of a sample of over 3,000 firms during 1990-2013, the researchers found that ECON (ESG) was negatively associated with cost of equity, but only growth and research (environmental and governance) sustainability performance dimensions contributed to this relationship. Operation efficiency was positively, while social sustainability performance was only marginally, related to cost of equity. ECON and ESG sustainability performance was also found to interactively affect cost of equity. In general, the relationship between ECON (ESG) and cost of capital was strengthened when ESG (ECON) performance was strong.
This research will contribute to the accounting and finance literature as investors demand, regulators require and more than 7,000 corporations worldwide disclose their financial and nonfinancial dimensions of sustainability performance information and trend towards sustainability performance reporting is continuing to grow.