IMPACTS OF CORPORATE SOCIAL AND ENVIRONMENTAL RESPONSIBILITY (CSER) PERFORMANCE ON COST OF CAPITAL.

€

ECONOMIC F'ACULTY

ANDALAS UNIVERSITY

Thesis

IMPACTS OF CORPORATD SOCL{L AND EN!'IRONMENTAI,

RESIONSIBILITY (CSER) PERIORMANCE ON COST OF

CAIITAL

DEDI ADRIAN 04153 05t

Studcnl of Undergmduate Degree in A.counting Dcplrtmcot

nrs

srd)

fiF

a _Cap

i,

rhe emprricol li.eaD'e on co-pomr.

s.id'

md

eNircmertal rcsporuibility by exminirg irs

lirl

lo the

6st

of

opft.t

(cost

of

d€bl and cosl

of equit)

i!

nining

ed

ninine

snice

indul,-y

ed

banrins

odsty

listed at takafia Srock Exchmge.

Minils

ad

minjog senice indusbr

h

clsified

s

hign pronle

indut

y, yhich

ir

mrc operarion, is higbly rclaied to

CSER issues. In lhe ot!€r

had,

banling is cldsified

a

low pmfile induFy,

trfiich ns

oF

opdation is nol significmlly r€Lr€d 10 CSER issu€s. This Bearch

will compde iiat relatiotrhip

ir

borh induslries. Usine

e

asMprlon rhat dsk is

a hajor frctor atrecting cost ofcapita.l.

dd

veiables ofBeta

6

a

m€sw

ofnsk

in equity

finecins

dd

inGidst 6te

s

a

nesw

of iisk in debt tumcing, rhis

study conclude thal in general rherc G no ElatioBhip

betren

CSER

perfomde

md cosl of capiid in both industy. 4n qception jusr @cws !o lhe Elationship

betw€en CSER

perfomee

dd

@st

of

debt

in

midng

ed

nining

s€aice

ildutr.

lbis

Esuh

nees

ihal investoG

dd

cEdito$ have not

co.M€d

yei to

CSER

lerfomee

of a compoy befoF invesline tbeir tund.

Kztwor&: Coryorale So.ial and Envirc nental RespoBibilitr,

C6t

afcapital,

CITAPTERI

INLRODIICTION

Corpomrc Social and trnvtonmenral Respo ibilny l]3s beconc tne inLLrcslins

issuc

&oud

ihe world in rho ldsl decdes. ctudty. this issue tras

b*r

ruised since

dt

industial rc!.lution in western

c.ulries

ar 1990

(Hilna!

2l)l)?). tn this cra rhe

deltlopmenrs

ol

1,d6rial

_tsch.oloCjr werc

go*ins

rapidly

Th.

_le.hniquc

ol

masive poducrion was inboduced at

tlis

tim€. This pioducrion

ftch

_{que broushr}

both

r!.

_Fositive md neeative etrdcrs into tlic *ortd. onc orlhe

regdi,c

inpocls

of

dis developnem is lo$€rds drc

cnvr.n.Enr

_{d socid.} Howcver, ar

ihjs

ne. rte

cttbcls of dns revoluljon *erc slill happened in drc {esrern

suntn.s

Tn.

indGriai

derclopnenrs

did

not

jusr

stopped

ol

thar

lmc

Now.

indusiriallztion n spreadine round the rvortd. Many iddlslries havc been estabtished

in narrr comries sincc lhc r€rolurion. In line wilh lhh condition. de

jnpa* ofn

also b€comes _Eloballr The efecls dc boi ju$ nappen in weslcd countriesbymoF,

but aho lo _{rhe Blobal}

comreiry

dd

envtonnent.

lor

exdple,

_elabal wamriDe

'suc tud

hun

rieht hsue thdl sprad domd rbe wond.

The _{Blobaliztions}

ol

industry

ec

iollowed by Lhe _{incrcasing aRare.css}

ol

onmuny

ro*dd

ewirorncn!

ad $ci!t

issucs. p€ople

m

_nore concch

.iour

rhe

phce pnerc they

lile

ad

$c

lila

ilslt

One locus

of

then conccms

h

towdd

QrpoBte aclions

esddirs

to

cohmunity

md

environnenr hsucs. They rend 10

+pEciate $e companies $ar

m

also conccm wirh lhese issues. Thh afpEciarion

tu

be

b

foft

oltendency Io

wo

in

$!t

contdy,

buy

thd

produds. or invest in

MILIK

tsesidesrha{. _{de inbnnationrcchnoloqicsllso impove}

doud

_the

*rrtd.

_rhe

evcn( in

o....dnrq

can bc tnowo by thc

F.nre

iD _{orhercoundcs in} a sc()nd _The cvenls berc inulude

rhc co4{rare

_{sociar rcsponsibiliiy iss@s conduclcd by}

co4roralions. So that. inlbmarion abour CSLR

ttrfondrc

of a

contary

cm be

&cesses

bt

everyom in

fie world

lh€ peopte

*1lt

reacl p.sirilely _{or lcgarively}

depend on lhe CSER

peifoftdce

of

llc

c.opary ilsett

All

phenonenoB above lead CSER hecome hot ropjc in rhe wortd. r'oday.

pcople aE nore concern lo rlis nsue. 1r cm be prcvcn by ihe

in.@i4

nrnbcs ot

CSER Mses ftced by thc conpaies hale b€en sueessaulty

di$lo*d.

thc

ces

ir.tf

ae hoth in positive md nesarive te@s. This facr made rhe compeies have ro reviJe

rheir

eds

$al noi jusr achierins lhe

dgele! findci.l

profit, bu aho achjeling the

subinabiliqr derelopment

of

$eir

busincss Tn€ susbinability development here

consisls _{olachicving Esered}

fin&cid

_{prcjtt; developing}

colmmir!;

od

natrjna,

soorl relatiod wilh

cu!one*,

enployecs, _&d supplieF

Fail

ro

a.@mplnh &ese goah

wil

_brins negative consequenccs

ro

the

conF&y. Thc

cxdple olthh

cae is Nike underp.id workers

i.

o,ereeas facl.nes

od

enployed chitd in the rus indusrty in

Fleral

develop'n8 countri$

6

shred in

Bdon (2001). Ii

ws

a so@e of onlroveny

od

disord. wnn anempts lo organjze

bolcons

oftm

aliesed ro be paying

uwsonably

low w,gcs lo €mployees in pmr

autries.

Nike

sa

one ofthc

fi^l

tujor

otpoEtiotrs to titce such a boycon. Md n

urloubtedly ddaged its brmd image.

Ihe

csc

otNikeaho occMed ar Lcvi StEu$ ot.rhe US

dd

Chdles veilton

oi

Swilarlod

(!cal.

2l]O4). Bur. d.se

ampdics

handled n norc proacrivety

lhd

\ile

did. _{Levj noved b€foie} n

bedre

llc

iaJgel of cnrichm to cosur€ that Rortjng

CHATTERV

Based on thc hypothesis tcsting

in

the chapter

4.

the reseNhcr

cm

draw the

mnclBion

.l

$is

r€srth

The conclusidns olthis Esear.h

in,

I

There

k

no

reLriionrhin betw€en corporate

scial

dd

envnomeni.l

dd

co$ oI equny in Midne

ed

Mining lndusrr_v

Esponsibilily

pdfomdcc

3.

Tlis coftlition exisls becaue the invenos oi borh indEr.ies stiU focus

lheir ancndons

lo

nnmcial

pe.fomces

of

the

onpuics

bcforc investing

then tunds.

It

c

be proven by all of r values de above 1 .96 for DFL md

LevcraCe. DFL

dd

Le\erage ae onesorfinucialrisks indicdror.

Thca

is

no

relarionship

b:rRen

coryomtc

ecial

and

envnomental

responsibility performce

dd

on

ofdcbt in Bdkins Indusr4

lhe

resor

for

this condilion

is

sde

with the prcvious one. The

creditoE in this

induFy

still

fcu

on lhe nnmcial _!€domaces.

It

can b€

se.

rtun

the

rdult

of

nultivdiale Eslession that says

$qe

is sisdficmt

rclatiohship bctwccn Capital Sl,acnft (Findcjal related

nsk)

d

lntftst

Ratc

There

is

nesalive Etalionship b€te€en corForale

$cial

lnd

erviromcnial

rcsponsibihy peifommce md cost of debl in Mini.g

dd

Mining IndsLy.

This relalionshjp exisls nay be beMse the ciedito6 in thh induslry

h6

Eoie

risl$

drd

the

oeditos in

Bar*ins Industry. Tnh

prcnim

rislc

@

Bqon.David P., 2001, 'Busin6s and lts En!ir.nnent,4tn !dition". Prdnricellall.

B.nh, Mary

E.,

d

Any

P. Hunon, _{200l. "Finacial} analysls

dd

rhe pncing oa accruals",Slanford Univesity Workinn Papcr.

Chspmln, Pctcr,

200l,

Thc Elhics of CorpoEre Social Responsibitityi

MaMsement Trend

of

lhe Nerv Millcnnium?'. Sh@holder Assciariod ior

Reserrh od Educltion

Coch6n, P. and Wooi,

R.,

1934, Corp.rare Social Resp.nsibility

ud

Financial

P€rromrce , Audeny ofMdagement Joumai. 27 ( l l: 42-56

csdelwork

dd

Yelds, Radley,2004, why bother

lith

CSR?

lte

Top l0 Benefib

ol

B€,gilg

in

Ctrp@r

S&irl

R.spesibihr.

Tlrc

BasiK tt*..

u\!':s

r!r\.'

!.!4.

Rdi6€d

d

,rm3-4{ lO

DNin,

Ali,

2007. 'Prospek Corpodts Sooisl Responsibiliry Menggenbi6kan, Akunrrn Indonesi!: 3nahun lNovcmb(2007

Dehow, Palricia M., and Ilia D. Dichev. 1993, _"The

qualilt.faccnak

_{lnd eminss:} The role of &crud slinration

cm6',

Unive^ity olMichigan working _Fper

Dene{im,200T, lrinancialRaliosa.dcredirRiskiTheSelarionorFinanci:lRatio

Cddb

in

D&

Cebets"-

\!

\r

!

!t! qir

l

Dwyer, DouElA W.,Guo.Gurog,dd Hood III, Frcdcnck, 2006, ,

rto.dii

KMv Riskcatc

\'3'1

l@-.

$rwdodvslmv

c!ni,ll6;er€d

o

2@a.l}5-27

Dsler, Dougl* N., K@agil. Abhd E,

ftd

Relngold, Alexrder,2004, -Moody\ KMV

R]lLri.

v31 U5

BEI'-\rr\

moodr:kD\ .ofi.

Xei6€d

q

z0t)84t27

F.i€nds

ol $e

E$lh, 2005, "British Am€ricah TotEco Reporl Shows Trulh aehind

Crnwsh.

.

Rtui.v.d

m

2mR

03 07

God6ex P.,

2fiJ5,

$€

Relationship B.twen corpocre Philanthropy

dd

St@hotder

wearln: a

Rk(

Manlsenrent Pe6p.ai\e . Acadeny .1 Ma asehent Rzyiev,3a