An International Perspective on Corporate Social Responsibility, Investor Time Preferences, and Cost of Equity

For a sample of 25,749 international firm-year observations, we evaluate the relationship between shareholders’ time orientation, firms’ corporate social responsibility (CSR), and the cost of equity capital. We find evidence that patient institutional investors monitor the CSR strategy of the firms in which they invest to the extent that the CSR practices of these firms lower their cost of equity capital. Further analysis indicates that this effect is less pronounced when strong national institutions are in place, making monitoring by patient institutional investors unnecessary. Our results reinforce the idea that CSR can be beneficial by lowering the cost of capital as long as adequate control mechanisms are in place. •Patient institutional investors monitor the CSR strategy of firms.•CSR practices of these firms lower their cost of equity capital.•Strong national institutions make monitoring by patient investors dispensable.•CSR can lower cost of capital if adequate control mechanisms are in place.