This paper examines how corporate environmental responsibility (CER) affects the cost of equity capital for manufacturing firms in 30 countries. Using several approaches to estimate firms’ ex ante equity financing costs, we find that the cost of equity capital is likely to cheaper when firms have a higher level of CER. The results are consistent even after controlling for the endogeneity problem. Our results suggest that improving environmental responsibility would reduce firms’ equity financing costs and the negative relationship between CER and financing costs is at work in around the world.
Key Words: Corporate environmental responsibility; Cost of equity capital
