臺大管理論叢 NTU Management Review VOL.30 NO.2

The Effect of Corporate Social Responsibility Performance on Financial Risk 260 both corporate governance concerns and strengths positively affect a firm’s risk. They attribute this inconsistent impact to the fact that market participants do not agree on the value of the strengths and their impacts on the moments of cash flows. In addition, appropriate cost of equity capital estimates are difficult to obtain, so prior research adopts indirect estimates of cost of equity capital (Botosan, 1997). Several studies suggest that there are measurement errors in estimating the cost of capital, which can lead to spurious inferences, including studies by Goolsbee (2000) and Wang (2012). These measurement errors are also possible reasons for the observed contradiction of the positive relationship between corporate governance performance and the cost of capital. The findings of this study contribute to the existing line of research regarding CSR performance in several ways. First, the paper is motivated by Lang and Maffett (2011), Ng (2011), and Sadka (2011), who suggest that higher information quality can lower liquidity risk. While previous studies also suggest that socially responsible firms provide quality financial reports (Gelb and Strawser, 2001; Chin et al . , 2008; Kim et al . , 2012), our findings extend these studies by addressing the unexplored link between CSR performance and liquidity risk. The results indicate that superior CSR performance leads to a higher return on an asset in times of market illiquidity, an increase in the ability to sell easily in states of poor market return, and an increase in the ability to sell easily when the market in general becomes illiquid. Second, the results indicate that a firm benefits from superior CSR performance due to the benefit of the decreased market risk and liquidity risk. As a result, superior CSR performance reduces the cost of capital. Our study complements Luo and Bhattacharya (2009), Bouslah et al . (2013), and Kim et al . (2014), who also analyze the association between CSR performance and firm risk We extend upon these studies by separating systematic risk into market risk and liquidity risk. This study also complements El Ghoul, Guedhami, Kwok, and Mishra (2011) and Feng, Wang, and Huang (2015), who analyze the cost of capital implications of CSR. We extend El Ghoul et al . (2011) by using five proxies for the cost of capital based on the CAPM, the Fama-French three-factor model, and earnings-to-price ratio and showing that firms with better CSR performance exhibit a lower cost of capital for a longer sample period (1995-2011 compared to 1992-2007 in their analysis), based on CSR performance data from the KLD STATS database. Unlike Feng et al. (2015), who obtain CSR performance data from the Thomson Reuters ASSET4 database, our CSR data is obtained from the KLD STATS database. The ASSET4 database covers four dimensions (environment, social, corporate governance, and economics)