The impact of CSR/ESG reporting on the cost of capital : an example of US healthcare entities

Abstract

PURPOSE: Identifying the direction and strength of the relationship between individual elements of ESG and ESG as a whole and the cost of capital (weighted average, equity, and debt) in the healthcare industry.

DESIGN/METHODOLOGY/APPROACH: This paper incorporates an analytical approach based on the results of the original research.

FINDINGS: According to our conclusions based on empirical studies of the US healthcare industry, ESG and its corporate governance component translate into the weighted average cost of capital and one of its components, i.e., the cost of equity.

PRACTICAL IMPLICATIONS: The healthcare sector is a critical element of the pandemic-determined economic reality. The possibility of obtaining cheaper capital, e.g., for its development, is therefore of considerable importance. This paper shows that the weighted average cost of capital (WACC) and the cost of equity is significantly affected by ESG and the corporate governance component. About the cost of debt, no such relationships can be established. In our view, the existence of such dependencies (allowing for reducing the cost of capital) is crucial for the managers of companies from this socially important sector.

ORIGINALITY/VALUE: The article studies on the healthcare industry rarely focus on rationalizing the cost of capital. The literature presenting similar studies (linking the presentation of ESG disclosures with the cost of money), although concerning other industries, also suggests a lack of comprehensive empirical studies on this topic. Therefore, our study reduces this research gap in this context while the research methodology itself is also innovative.