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SUSTAINABILITY REPORT, OWNERSHIP TYPES, AND COST OF CAPITAL: EVIDENCE ON INVESTORS’ REACTION OF INDONESIAN LISTED COMPANIES
Corresponding Author(s) : Hilda Rossieta
Humanities & Social Sciences Reviews,
Vol. 7 No. 6 (2019): November
Abstract
Purpose: This research aims to examine investors’ reactions to the Sustainability Report (SR) and the moderating effect of ownership types associated with stakeholders’ interdependence theory.
Methodology: This research uses purposive sampling method to choose the samples. The population of the samples is Indonesian listed companies that disclose sustainability reports from 2014 to 2016. This research uses secondary data using several data sources, such as the annual report, financial report, sustainability report, data stream database, and another secondary source.
Results: In general, empirical evidence indicate that investors appreciate sound SR performance by the tendency to give a discount on their investment; hence, they charge low Cost of Capital. Also, types of ownership do have a moderating effect on investors’ reaction, suggesting the existence of interdependent among stakeholders group.
Implications: This research captures investors' reactions by looking at the Cost of the Capital bear by the company as a proxy for investor reaction on the perceived risk associated with the sustainability issues. Moreover, this research converts the Cost of Capital as a continuous variable into a categorical variable of high and low.
Keywords
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- Ben Lahouel, B., Peretti, J. M., & Autissier, D. (2014). Stakeholder power and corporate social performance: The ownership effect. Corporate Governance, 14(3): 363-381. https://doi.org/10.1108/CG-07-2012-0056 DOI: https://doi.org/10.1108/CG-07-2012-0056
- Chaganti, R., and Damanpour, F. (1991). Institutional Ownership, Capital Structure, and Firm Performance. Strategic Management Journal, 12(7): 479-491. https://doi.org/10.1002/smj.4250120702 DOI: https://doi.org/10.1002/smj.4250120702
- Chen, J.C., & Roberts, R.W. (2010. Towards a more coherent understanding of the organization-society relationship: A theoretical consideration for social and environmental accounting research. Journal of Business Ethics, 97 (4): 651-665. https://doi.org/10.1007/s10551-010-0531-0 DOI: https://doi.org/10.1007/s10551-010-0531-0
- Cox, P., Brammer, S., and Millington, A. (2004). An Empirical Examination of Institutional Investor Preferences for Corporate Social Performance. (2004). Journal of Business Ethics, 52(1): 27-43. https://doi.org/10.1023/B:BUSI.0000033105.77051.9d DOI: https://doi.org/10.1023/B:BUSI.0000033105.77051.9d
- Faller, C.M. & Zu Knyphausen-Aufseß, D. (2018). Does Equity Ownership Matter for Corporate Social Responsibility? A Literature Review of Theories and Recent Empirical Findings. Journal of Business Ethics, 150(1):15-40. https://doi.org/10.1007/s10551-016-3122-x DOI: https://doi.org/10.1007/s10551-016-3122-x
- Felisha and Rossieta, H. (2017). Is Environmental Performance Valued by Investors? - The Case of Indonesian Listed Companies. Advances in Economic, Business and Management Research (AEBMR), Vol. 55 – 6th International Accounting Conference (IAC 2017). https://doi.org/10.2991/iac-17.2018.46 DOI: https://doi.org/10.2991/iac-17.2018.46
- Firer, C., Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2012). Fundamentals of corporate finance. McGraw-Hill Higher Education.
- Gallego-Ãlvarez, I., Quina-Custodio, I.A. (2017). Corporate Social Responsibility Reporting and Varieties of Capitalism: an International Analysis of State-Led and Liberal Market Economies.Corporate Social Responsibility and Environmental Management,24(6): 478-495. https://doi.org/10.1002/csr.1421 DOI: https://doi.org/10.1002/csr.1421
- GarcÃa-Sánchez, I. M., & Noguera-Gámez, L. (2017). Integrated information and the cost of capital. International Business Review, 26(5) : 959-975. ttps://doi.org/10.1016/j.ibusrev.2017.03.004 DOI: https://doi.org/10.1016/j.ibusrev.2017.03.004
- Goettsche, M., Steindl, & T., Gietl, S. (2016). Do Customers Affect the Value Relevance of Sustainability Reporting? Empirical Evidence on Stakeholder Interdependence. Business Strategy and the Environment,25(3):149-164. https://doi.org/10.1002/bse.1856 DOI: https://doi.org/10.1002/bse.1856
- Gupta, K.(2018). Environmental sustainability and implied cost of equity: international evidence. Journal of Business Ethics, 147 (2): 343-365. https://doi.org/10.1007/s10551-015-2971-z DOI: https://doi.org/10.1007/s10551-015-2971-z
- Harper Ho, V.. (2018). Nonfinancial risk disclosure and the costs of private ordering. American Business Law Journal, 55 (3): 407-474. https://doi.org/10.1111/ablj.12123 DOI: https://doi.org/10.1111/ablj.12123
- Hsu, C. H., Lai, S. C., & Li, H. C. (2016). Institutional ownership and information transparency: Role of technology intensities and industries. Asia Pacific Management Review, 21(1): 26-37. https://doi.org/10.1016/j.apmrv.2015.06.001 DOI: https://doi.org/10.1016/j.apmrv.2015.06.001
- Hu, Y., Zhu, Y., Tucker, J., & Hu, Y. (2017). Ownership influence and CSR disclosure in China. Accounting Research Journal. https://doi.org/10.1108/ARJ-01-2017-0011 DOI: https://doi.org/10.1108/ARJ-01-2017-0011
- Johnson, Richard A., and Greening, Daniel W. (1999). The Effect of Corporate Governance and Institutional Ownership Types on Corporate Social Performance. The Academy of Management Journal, 42 (5): 564 – 576. https://doi.org/10.2307/256977 DOI: https://doi.org/10.2307/256977
- Jung, J., Herbohn, K., & Clarkson, P. (2018). Carbon Risk, Carbon Risk Awareness, and the Cost of Debt Financing. Journal of Business Ethics,150(4): 1151-1171. https://doi.org/10.1007/s10551-016-3207-6 DOI: https://doi.org/10.1007/s10551-016-3207-6
- Li, S., & Liu, C. (2018). Quality of Corporate Social Responsibility Disclosure and Cost of Equity Capital: Lessons from China. Emerging Markets Finance and Trade, Mar: 2472-2494. https://doi.org/10.1080/1540496X.2018.1443441 DOI: https://doi.org/10.1080/1540496X.2018.1443441
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- Nagata, K., & Nguyen, P. (2017). Ownership structure and disclosure quality: Evidence from management forecasts revisions in Japan. Journal of Accounting and Public Policy, 36(6): 451-467. https://doi.org/10.1016/j.jaccpubpol.2017.09.003 DOI: https://doi.org/10.1016/j.jaccpubpol.2017.09.003
- Ng, A.C. & Rezaee, Z. (2015).Business sustainability performance and the cost of equity capital.Journal of Corporate Finance, 34: 128-149. https://doi.org/10.1016/j.jcorpfin.2015.08.003 DOI: https://doi.org/10.1016/j.jcorpfin.2015.08.003
- Saleh, M., Zulkifli, N., & Muhamad, R. (2010). Corporate social responsibility disclosure and its relation to institutional ownership: Evidence from public listed companies in Malaysia. Managerial Auditing Journal, 25(6): 591-613. https://doi.org/10.1108/02686901011054881 DOI: https://doi.org/10.1108/02686901011054881
- Sjåfjell, Beate. (2018). Redefining the Corporation for Sustainable New Economy. Journal of law and Society, 45 (1): 29-45. https://doi.org/10.1111/jols.12077 DOI: https://doi.org/10.1111/jols.12077
- Suto, M., & Takehara, H. (2017). CSR and cost of capital: evidence from Japan. Social Responsibility Journal, 13(4), 798-816. https://doi.org/10.1108/SRJ-10-2016-0170 DOI: https://doi.org/10.1108/SRJ-10-2016-0170
- Tarigan, J., & Semuel, H. (2015). Pengungkapan Sustainability Report dan Kinerja Keuangan. Jurnal Akuntansi dan Keuangan, 16(2): 88-101. https://doi.org/10.9744/jak.16.2.88-101 DOI: https://doi.org/10.9744/jak.16.2.88-101
- Graves, S.B., and Waddock, S. (1994). Institutional Owners and Corporate Social Performance. The Academy of Management Journal, 37(4): 1034 – 1046. https://doi.org/10.5465/256611 DOI: https://doi.org/10.5465/256611
- https://www.un.org/sustainabledevelopment/development-agenda/ accessed at Agustus 2018
References
Ben Lahouel, B., Peretti, J. M., & Autissier, D. (2014). Stakeholder power and corporate social performance: The ownership effect. Corporate Governance, 14(3): 363-381. https://doi.org/10.1108/CG-07-2012-0056 DOI: https://doi.org/10.1108/CG-07-2012-0056
Chaganti, R., and Damanpour, F. (1991). Institutional Ownership, Capital Structure, and Firm Performance. Strategic Management Journal, 12(7): 479-491. https://doi.org/10.1002/smj.4250120702 DOI: https://doi.org/10.1002/smj.4250120702
Chen, J.C., & Roberts, R.W. (2010. Towards a more coherent understanding of the organization-society relationship: A theoretical consideration for social and environmental accounting research. Journal of Business Ethics, 97 (4): 651-665. https://doi.org/10.1007/s10551-010-0531-0 DOI: https://doi.org/10.1007/s10551-010-0531-0
Cox, P., Brammer, S., and Millington, A. (2004). An Empirical Examination of Institutional Investor Preferences for Corporate Social Performance. (2004). Journal of Business Ethics, 52(1): 27-43. https://doi.org/10.1023/B:BUSI.0000033105.77051.9d DOI: https://doi.org/10.1023/B:BUSI.0000033105.77051.9d
Faller, C.M. & Zu Knyphausen-Aufseß, D. (2018). Does Equity Ownership Matter for Corporate Social Responsibility? A Literature Review of Theories and Recent Empirical Findings. Journal of Business Ethics, 150(1):15-40. https://doi.org/10.1007/s10551-016-3122-x DOI: https://doi.org/10.1007/s10551-016-3122-x
Felisha and Rossieta, H. (2017). Is Environmental Performance Valued by Investors? - The Case of Indonesian Listed Companies. Advances in Economic, Business and Management Research (AEBMR), Vol. 55 – 6th International Accounting Conference (IAC 2017). https://doi.org/10.2991/iac-17.2018.46 DOI: https://doi.org/10.2991/iac-17.2018.46
Firer, C., Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2012). Fundamentals of corporate finance. McGraw-Hill Higher Education.
Gallego-Ãlvarez, I., Quina-Custodio, I.A. (2017). Corporate Social Responsibility Reporting and Varieties of Capitalism: an International Analysis of State-Led and Liberal Market Economies.Corporate Social Responsibility and Environmental Management,24(6): 478-495. https://doi.org/10.1002/csr.1421 DOI: https://doi.org/10.1002/csr.1421
GarcÃa-Sánchez, I. M., & Noguera-Gámez, L. (2017). Integrated information and the cost of capital. International Business Review, 26(5) : 959-975. ttps://doi.org/10.1016/j.ibusrev.2017.03.004 DOI: https://doi.org/10.1016/j.ibusrev.2017.03.004
Goettsche, M., Steindl, & T., Gietl, S. (2016). Do Customers Affect the Value Relevance of Sustainability Reporting? Empirical Evidence on Stakeholder Interdependence. Business Strategy and the Environment,25(3):149-164. https://doi.org/10.1002/bse.1856 DOI: https://doi.org/10.1002/bse.1856
Gupta, K.(2018). Environmental sustainability and implied cost of equity: international evidence. Journal of Business Ethics, 147 (2): 343-365. https://doi.org/10.1007/s10551-015-2971-z DOI: https://doi.org/10.1007/s10551-015-2971-z
Harper Ho, V.. (2018). Nonfinancial risk disclosure and the costs of private ordering. American Business Law Journal, 55 (3): 407-474. https://doi.org/10.1111/ablj.12123 DOI: https://doi.org/10.1111/ablj.12123
Hsu, C. H., Lai, S. C., & Li, H. C. (2016). Institutional ownership and information transparency: Role of technology intensities and industries. Asia Pacific Management Review, 21(1): 26-37. https://doi.org/10.1016/j.apmrv.2015.06.001 DOI: https://doi.org/10.1016/j.apmrv.2015.06.001
Hu, Y., Zhu, Y., Tucker, J., & Hu, Y. (2017). Ownership influence and CSR disclosure in China. Accounting Research Journal. https://doi.org/10.1108/ARJ-01-2017-0011 DOI: https://doi.org/10.1108/ARJ-01-2017-0011
Johnson, Richard A., and Greening, Daniel W. (1999). The Effect of Corporate Governance and Institutional Ownership Types on Corporate Social Performance. The Academy of Management Journal, 42 (5): 564 – 576. https://doi.org/10.2307/256977 DOI: https://doi.org/10.2307/256977
Jung, J., Herbohn, K., & Clarkson, P. (2018). Carbon Risk, Carbon Risk Awareness, and the Cost of Debt Financing. Journal of Business Ethics,150(4): 1151-1171. https://doi.org/10.1007/s10551-016-3207-6 DOI: https://doi.org/10.1007/s10551-016-3207-6
Li, S., & Liu, C. (2018). Quality of Corporate Social Responsibility Disclosure and Cost of Equity Capital: Lessons from China. Emerging Markets Finance and Trade, Mar: 2472-2494. https://doi.org/10.1080/1540496X.2018.1443441 DOI: https://doi.org/10.1080/1540496X.2018.1443441
Mahoney, Lois S., and Roberts, Robin W. (2007). Corporate Social Performance, Financial Performance, and Institutional ownership in Canadian Firms. Accounting Forum, 31 (3): 233-253. https://doi.org/10.1016/j.accfor.2007.05.001 DOI: https://doi.org/10.1016/j.accfor.2007.05.001
Nagata, K., & Nguyen, P. (2017). Ownership structure and disclosure quality: Evidence from management forecasts revisions in Japan. Journal of Accounting and Public Policy, 36(6): 451-467. https://doi.org/10.1016/j.jaccpubpol.2017.09.003 DOI: https://doi.org/10.1016/j.jaccpubpol.2017.09.003
Ng, A.C. & Rezaee, Z. (2015).Business sustainability performance and the cost of equity capital.Journal of Corporate Finance, 34: 128-149. https://doi.org/10.1016/j.jcorpfin.2015.08.003 DOI: https://doi.org/10.1016/j.jcorpfin.2015.08.003
Saleh, M., Zulkifli, N., & Muhamad, R. (2010). Corporate social responsibility disclosure and its relation to institutional ownership: Evidence from public listed companies in Malaysia. Managerial Auditing Journal, 25(6): 591-613. https://doi.org/10.1108/02686901011054881 DOI: https://doi.org/10.1108/02686901011054881
Sjåfjell, Beate. (2018). Redefining the Corporation for Sustainable New Economy. Journal of law and Society, 45 (1): 29-45. https://doi.org/10.1111/jols.12077 DOI: https://doi.org/10.1111/jols.12077
Suto, M., & Takehara, H. (2017). CSR and cost of capital: evidence from Japan. Social Responsibility Journal, 13(4), 798-816. https://doi.org/10.1108/SRJ-10-2016-0170 DOI: https://doi.org/10.1108/SRJ-10-2016-0170
Tarigan, J., & Semuel, H. (2015). Pengungkapan Sustainability Report dan Kinerja Keuangan. Jurnal Akuntansi dan Keuangan, 16(2): 88-101. https://doi.org/10.9744/jak.16.2.88-101 DOI: https://doi.org/10.9744/jak.16.2.88-101
Graves, S.B., and Waddock, S. (1994). Institutional Owners and Corporate Social Performance. The Academy of Management Journal, 37(4): 1034 – 1046. https://doi.org/10.5465/256611 DOI: https://doi.org/10.5465/256611
https://www.un.org/sustainabledevelopment/development-agenda/ accessed at Agustus 2018