This study investigate the relationship between CSR and required rate of return (cost of capital), both cost of equity and cost of debt. This study use up to 690 observations of listed firms in Indonesia for year 2013-2015 by using multiple regression analysis. CSR disclosure score is measured using percentage of keywords coverage in firm’s annual report with NVivo software. The keywords were adopted from Pencle & Malaescu (2016) adopted from GRI G4, UN Global Compact, ESG, KLD, and IIRC dimensions, also validated by expert (Pencle & Malaescu, 2016). Not only use percentage of keywords coverage, this study also use manually indexing procedure according to GRI G4 list items to check the robustness. This study shows that previous year cost of equity and cost of debt motivate companies to disclose CSR extensively in the current year. After disclosing CSR more extensive, it is not proven that companies get benefit in the form of lower cost of equity and cost of debt in the next year. Investors and creditors did not perceived CSR disclosure as a mean of reducing asymmetric information and information risk. CSR disclosure per se may not perceived as risk reducing activities by investors and creditors so it does not guarantee lower cost of capital. The effect of CSR on cost of capital may be depend on company’s CSR performance. The empirical study regarding the impact of CSR performance can be studied by future researcher. This study provides new insight about cost of equity & cost of debt as determinants of CSR disclosure level, but not as consequences of CSR disclosure. This research is useful for companies in their financial planning. Companies can consider quality of CSR performance -not only CSR disclosure level- as a mean of getting capital (both equity and debt) at a lower cost.

Type of Paper: Empirical

Keywords: cost of equity; cost of debt; Corporate Social Responsibility (CSR); disclosure