The effect of CSR and corporate ethical behavior on implicit cost of equity: the mediating role of integrated reporting quality

Abstract

Purpose

The purpose of this study is to analyze the effect of corporate social responsibility (CSR) practices and corporate ethical behavior on implicit cost of equity (COE) using integrated reporting quality (IRQ) as a mediating variable in European companies belonging to the environmental, social and governance (ESG) index.

Design/methodology/approach

The authors use a panel data set of 540 European firms from the ESG index from 2013 to 2022. The data were collected from I/B/E/S and Thomson Reuters ASSET4 database and analyzed using the structural equation model to test hypotheses.

Findings

In the instance of ESG European firms, the findings indicate that CSR practices and corporate ethical behavior are negatively related to the COE. From the result of the Sobel test, this study indicated that IRQ has only indirect mediation on the relationship between CSR, ethical behavior of the company and implicit COE.

Practical implications

The findings have some policy and practical implications that may help regulators and managers in improving the COE and helping companies envision their future growth opportunities in a context where responsibility, ethics and disclosure are central to corporate valuation. Using the implicit COE is a better estimate of shareholder requirements in the context of ESG companies.

Originality/value

This research concentrates on ESG companies since they are more likely to contribute to environmental protection, which attracts responsible investors. Furthermore, the findings may be useful to worldwide managers and investors who use responsible practices as a criterion in their decision-making.

Citation

Chouaibi, Y., Khlifi, S. and Chouaibi, J. (2024), "The effect of CSR and corporate ethical behavior on implicit cost of equity: the mediating role of integrated reporting quality", Global Knowledge, Memory and Communication, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/GKMC-12-2023-0490