The effect of Corporate Social Responsibility (CSR) disclosure on the cost of debt in the textile industry

• Main Author: Asfandyar, S. (Safia)
• Format: Dissertation
• Language: English
• Published: University of Oulu 2018
• Subjects: Accounting
• Online Access: http://urn.fi/URN:NBN:fi:oulu-201811072983; http://nbn-resolving.de/urn:nbn:fi:oulu-201811072983

Corporate social responsibility, CSR is the requirement for firms to take responsible actions towards the environment and society which are beyond their traditional roles and legal obligations. CSR has received much significance and firms are expected to announce CSR activities in the form of CSR disclosure. CSR is also claimed to be a waste of scarce resources making it unattractive to managers. The study looks at the textile industry which is extensively export-aligned, cost-sensitive and labor-intensive and faces criticism and scrutiny for its ill effects on societal welfare. Therefore, the purpose of this paper is to examine the effect of CSR on the cost of debt to motivate managers understand the importance of CSR. Present literature is reviewed discussing, the benefits of CSR to firms in the form of reduced firm risk and information asymmetry and the negative relationship of cost of debt with the benefits of CSR. A total of 110 companies are selected from Thomson Reuters database with complete financial data from 2015 to 2016. The CSR disclosure data have been collected from companies’ official websites. The result of the regression model contradicts the hypothesis, which predicted a highly negative relationship between CSR disclosure and cost of debt. The findings of this study add to current studies on the effects of CSR on cost of debt. The outcome suggests that banks do not associate CSR disclosure with reduced risk profile of textile firms. Future research could focus on obtaining bigger samples to verify if the results of this study still apply. To the best of my knowledge, this study is the first empirical study to examine the effect of CSR on the cost of debt in the textile industry.