Sustainability Performance and Companies Financing: Does Audit Quality Matter?
DOI:
https://doi.org/10.33005/jasf.v7i2.514Keywords:
Corporate Social Responsibility, audit quality, cost of debt, cost of equityAbstract
Public listed companies are increasingly recognizing the importance of corporate social responsibility in their sustainability initiatives. Supporting the stakeholder theory, a commitment for social responsibility activities that reflected by CSR performance as a strategy of firms has created a positive image from stakeholder perceptions. This study examines how corporate social responsibility performance affects companies financing and the role of audit quality. To test the study’s hypotheses, the authors applied linier regressions model on panel data by observing samples of Indonesian Islamic listed companies from 2018 to 2022. The results show that a better CSR performance is associated with lower cost of debt and cost of equity. Moreover, this study also reflect upon the importance of audit quality that proxied by the BIG 4 auditors is found significantly moderates in both cost of debt and cost of equity. Thus, a better corporate social performance with the existence of BIG 4 auditor implies the ability of firms accessing to lower-cost capital by minimized the long term risks. The existence of BIG 4 auditors demonstrated the credibility effective monitoring as a good signals for capital provider or lenders. Our study represents a novelty to enrich the relevant literature on the corporate social responsibility by expanding it towards the role of audit quality on both cost of capital proxies.
Downloads
References
Alghizzawi, M. A., Youssef, M. A., Zraiq, M. A., & Elmassri, M. (2022). The Relationship Between Corporate Social Responsibility and Firm Perfomance: Evidence From Jordan. Accounting, Corporate Governance and Business Ethicss. https://doi.org/10.1080/2331975.2022.2088637
Bacha, S., Ajna, A., & Saad, S. Ben. (2021). CSR Performance and The Cost of Debt: Does Audit Quality Matter? Corporate Governance, 21(1), 137–158. https://doi.org/10.1108/CG-11-2019-0335
Bhuiyan, M. B. U., & Nguyen, T. H. N. (2019). Impact of CSR on Cost of Debt and Cost of Capital: Australian Evidence. Social Responsibility Journal, 16(3), 419–430. https://doi.org/10.1108/SRJ-08-2018-0208
Chen, B., & Zhang, A. (2021). How Does Corporate Social Responsibility Affect The Cost of Equity Capital Through Operating Risk? Borsa Istanbul Review, 21(1), 38–45. https://doi.org/10.1016/j.bir.2021.01.005
Coffie, W., Bedi, I., & Amidu, M. (2018). The Effect of Audit Quality on The Cos of Capital of Firms in Ghana. Journal of Financial Reporting and Accounting, 16(4), 639–659. https://doi.org/10.1108/JFRA-03-2017-0018
Fandella, P., Sergi, B. S., & Sironi, E. (2023). Corporate Social Responsibility Performance and The Cost of Capital in BRICS Countries. The Problem of Selectivity Using Environmental, Social and Governance Scores. Corporate Social Responsibility and Environmental Management. https://doi.org/10.1002/csr.2447
Freeman, R. E. (1984). Strategic Management: A Stakeholder Approach. Pitman.
Freeman, R. E. (1994). The Politics of Stakeholder Theory: Some Future Directions. Business Ethics Quarterly, 4(4), 409–421. https://doi.org/10.2307/3857340
Freeman, R. E., Harrison, J. S., Wicks, A. C., Parmar, B., & Colle, S. de. (2010). Stakeholder Theory: The State of the Art. https://doi.org/10.1017/CBO9780511815768
Hmaittane, A., Bouslah, K., M’Zali, B., & Ibariouen, I. (2022). Corporate Sustainability and Cost of Equity Capital: Do Managerial Abilities Matter? Sustainability, 14, 11363. https://doi.org/10.3390/su141811363
Kordsachia, O., Focke, M., & Velte, P. (2022). Do Sustainable Institutional Investors Contribute to Firms’ Environmental Perfomance? Empirical Evidence From Europe. Review of Managerial Science, 16, 1409–1436. https://doi.org/10.1007/s11846-021-00484-7
Mai, M. U., Sudradjat, & Sembiring, E. T. (2023). Board Characteristic, State Ownership and Corporate Social Responsibility: Evidence From Indonesian Islamic Banks. Cogent Economics and Finance, 11(2), 2266323. https://doi.org/10.1080/23322039.2023.2266323
Nguyen, C. T., Nguyen, L. T., & Nguyen, N. Q. (2022). Corporate Social Responsibility and Financial Perfomance: The Case in Vietnam. Cogent Economics and Finance, 10(1). https://doi.org/10.1080/23322039.2022.2075600
Rahi, A. F., Akter, R., & Johansson, J. (2022). Do Sustainability Practices Influence Financial Performance? Evidence From The Nordic Financial Industry. Accounting Research Journal, 35(2), 292–314. https://doi.org/10.1108/ARJ-12-2020-0373
Rosa, F. La, Liberatore, G., Mazzi, F., & Terzani, S. (2017). The Impact of Corporate Social Perfomance on The Cost of Debt and Access to Debt Financing for Listed Europian non-financial Firms. European Management Journal, 1–11. https://doi.org/10.106/j.emj.2017.09.007
Saraswati, L. R., Uma, H., & Br, P. (2020). The Effect of Level Of Disclosure and Audit Quality on The Cost Of Equity Capital Moderated by Financial Distress. International Journal of Economics and Management, 7(11), 58–64. https://doi.org/10.14445/23939125/ijmes-v7i11p109
Sveva, B., & Izzo, M. F. (2016). Corporate Social Perfomance and Cost of Debt: The Relationship. Social Responsibility Journal, 13(2). https://doi.org/10.1108/SRJ-06-2016-0103
Trpeska, M., Atanasovski, A., & Lazarevska, Z. B. (2017). The Relevance of Financial Information and Contents of The New Audit Report For Lending Decisions of Commercial Banks. Accounting and Management Information System, 16(4).
Xiao, T., Geng, C., & Yuan, C. (2020). How Audit Effort Affects Audit Quality. China Journal of Accounting Research, 13(1), 109–127.
Xu, H., Xu, X., & Yu, J. (2021). The Impact of Mandatory CSR Disclosure on The Cost of Debt Financing: Evidence from China. Emerging Markets Finance and Trade, 57(8). https://doi.org/10.1080/1540496X.2019.1657401
Xu, S., Liu, D., & Huang, J. (2015). Corporate Social Responsibility, The Cost of Equity Capital and Ownership Structure: An Analyis of Chinese Listed Firms. Australian Journal Of Management, 40(2), 245–276. https://doi.org/10.1177/0312896213517894
Yeh, C. C., Lin, F., Wang, T. S., & Wu, C. M. (2019). Does Corporate Social Responsibility Affect Cost of Capital in China? Asia Pacific Management Review, 25(1), 1–12. https://doi.org/10.1016/j.apmrv.2019.04.001
Yi, Y., Xie, B., Zhou, L., & Wei, Y. (2020). Does CSR Affect The Cost of Equity Capital: Empirical Evidence From The Taregeted Proverty Alleviation of Listed Companies in China. PloS ONE, 15(2). https://doi.org/10.1371/journal.pone.0227952
Zahid, R. M. A., Khan, M. K., & Anwar, W. (2022). The Role of Audit Quality in The ESG-Corporate Financial Perfomance Nexus: Empirical Evidence From Western European Companies. Borsa Istanbul Review. https://doi.org/10.1016/j.bir.2022.08.011
Zarefar, A., Agustia, D., & Soewarno, N. (2022). Bridging the Gap between Sustainability Disclosure and Firm Perfomance in Indonesia Firma: The Moderating Effect of The Family Firm. Sustainability, 14, 12022. https://doi.org/10.3390/sy141912022
