The impact of corporate social responsibility on the cost of equity : an analysis of Vietnamese listed companies

ARTICLE INFO Xuan Quynh Le, Ngoc Tien Nguyen and Thy Ha Van Le (2019). The impact of corporate social responsibility on the cost of equity: an analysis of Vietnamese listed companies. Investment Management and Financial Innovations, 16(3), 8796. doi:10.21511/imfi.16(3).2019.09 DOI http://dx.doi.org/10.21511/imfi.16(3).2019.09 RELEASED ON Monday, 19 August 2019 RECEIVED ON Sunday, 16 June 2019 ACCEPTED ON Wednesday, 31 July 2019


INTRODUCTION
Sustainable development is an indispensable development trend of modern society, because sustainable development not only meets the needs of the present, but also ensures the needs of the future. Green economy has become a business trend in many developed countries and is spreading to developing countries. Under the pressure of all stakeholders, companies have implemented production and business activities, which are more and more responsible. However, environmental pollution is a global concern, so social responsibility in general and environmental responsibility in particular receive a lot of attention not only from researchers, but also of the whole society. The situation of environmental pollution in Vietnam has become more and more complex and the pressure from public tends to increase over time. Under this situation, the Ministry of Finance issued Circular 155/2015/TT-BTC guiding the listed companies that they have to be environmental and social disclosure (non-financial information). The regulation on environmental and social disclosure in Circular 155 marks an important step forward for Vietnam towards a sustainable financial market. Appendix 4 of this Circular stated that, on environmental issues, companies need to exchange information related to the management of raw materials, energy consumption and water consumption during the year, from which to divide share initiatives to save energy.
According to Gray et al. (1995), social and environmental disclosure is considered as a mechanism that organizations use to enhance their status, provide information to stakeholders and implement social contract between organizations and related stakeholders. Thus, environmental disclosure is considered as a tool to provide information about policies, strategies, goals, costs, environmental liabilities, etc. to the stakeholders in voluntarily or compulsorily to support decision making. At the same time, environmental disclosure also reflects the company's interest in environmental and social issues, which is reflected in the annual report or sustainable development report.
There are many empirical studies, which were conducted in developed economies, emerging economies, as well as developing economies, including Vietnam recently, on the benefits of environmental disclosure and the effects of environmental disclosure on financial performance, capital expenditures, cash flow, risk, etc. of the company. Most of these studies suggest that environmental and social disclosure will help companies save cost of equity, increase revenue, improve the image and reputation of the company, reduce risks and increase corporate value (Plumlee et al., 2015;Clarkson et al., 2013;Bich et al., 2015;El Ghoul et al., 2011;Dhaliwal et al., 2011). However, studies on the level of environmental disclosure, as well as assessing the relationship between environmental disclosure and cost of equity, are still limited in Vietnam. This study was conducted to review and assess the level of environmental disclosure, determine the impact of environmental disclosure on the cost of equity of listed companies on the Vietnamese stock market.
The structure of this study is as follows: first is introduction, which talks about the definition of environmental disclosure, the role of environmental disclosure and the need to conduct research on the relationship between the environmental disclosure and cost of equity. Section 1 discusses the literature review and develops the research hypothesis. In this section, we examine the relationship between environmental disclosure and equity cost, and then we develop a hypothesis to test the relationship between the practical environmental disclosure and cost of equity. Section 2 is the research method in which we describe the sample and build the regression model. In section 3, we present the research results and discuss the main findings of this article. Finally, last section is the conclusion.

LITERATURE REVIEW
According to Clarkson et al. (2008), environmental accounting is often studied in three directions: the first research direction is to study the factors that influence the decision of managers when disclosure of potential environmental debts. This was reflected in the research of Patten (1992), Aerts et al. (2006), and so on. These studies showed that there are some crucial factors affecting managers' decisions on compulsory environmental disclosure, especially when the information is given freely. The second research direction explored the relationship between environmental disclosure and performance, including environmental performance and financial performance. For example, there are many studies of Ingram and Frazier The initial studies examining the relationship between environmental disclosure and cost of equity focused on the relationship between specific environment issues or events and stock prices or stock price changes (Plumlee et al., 2015). The study which was conducted by Barth and McNichols (1994) suggested that the market has assessed superfund debt in excess of the amount published by companies which "undone" environmental debts. The research of Blacconiere and Patten (1994) provided evidence of benefits of improving environmental information disclosure. Specifically, while chemical companies were facing a drop in stock prices after a serious chemical leak (Union carbide Bhopal leak), stock prices have started to rise slightly for companies with better environmental disclosure. These studies provided evidence of the relationship between environmental disclosure and cost of equity, although their focuses are the relationship between compulsory environmental disclosure and environmental events, environmental debts.
In a study examining voluntary social and environmental disclosures, Richardson and Welker (2001), and Déjean and Martinez (2009) both claimed an unexpected positive relationship between social and environmental disclosure and cost of equity. According to these authors, three reasons can justify such an effect: (i) some companies disclosure social and environmental information, but they did not really comply to responsible approaches to society and environment (it means that there is a discrepancy between the company's social behavior and communication on the issue); (ii) on the other hand, if companies are making socially and environmentally responsible investments, those transactions can bring negative present value and serve to increase the total risk that the company can suffer; and (iii) the lack of trust in the environ-mental report, according to Rivière-Giordano (2007), can also explain the higher cost of equity.
In contrast to Richardson  Experimental studies are summarized in Table 1.
In summary, previous studies provided mixed results on the impact of environmental disclosure and cost of equity. The findings in these studies showed that the impact level of environmental disclosure on cost of equity varies depending on the type of information disclosure (voluntary or compulsory), the way to measure environmental disclosure index and cost of equity, research space, and sample size. In terms of research space, these studies were conducted in many countries, focusing mainly on developed countries (USA, Canada, Australia), and emerging economies recently, especially China. The sample size is also diverse, being the whole market or focusing on the most environmentally sensitive industry group. In terms of variable measurement, for independent variables (environmental disclosure index), developed countries used indices like Toxics Release Inventory (TRI); Kinder index, Lydenberg, and Domini index (KLD); Global initiative reporting index (GRI), etc. and content analysis methods in developing countries. The dependent variable  (2013) found out that companies with environmental disclosure are companies operating in areas with environmental impacts such as tourism, construction, aquatic product, chemical production. The companies operating in the field of less impact on the environment do not publish this information. According to the author, the reasons that corporate administrators do not support environmental disclosure are the fear of losing credibility and costly (Linh, 2017 It is clear that the research on environmental disclosure has been implemented in Vietnam relatively limited and these studies focused on analyzing the factors affecting the environmental disclosure and the impact of environmental disclosure on financial performance. Most of these studies suggested that good implementation of environmental responsibilities will bring many benefits for firms, especially increasing revenue, improving financial performance. However, the limitations of these studies are not considering the impact of environmental disclosure on capital cost, especially the cost of equity.
Based on synthesizing domestic and foreign studies related to environmental disclosure, the au-thors hypothesize that: "Environmental disclosure has a negative impact on cost of equity of listed companies on the Vietnamese stock market".

Research sample
In this paper, the authors collected sample in two steps. The initial sample measured the independent variables. The authors applied the random sample method. We chose the companies which have a Vietnamese annual report (including financial statements) of a listed non-financial companies with sufficient information on the indicators which need to be collected.

Dependent variable measurement
Cost of equity is the profit that a company requires to decide whether an investment meets the capital reimbursement requirement (Reverte, 2012). Cost of equity can be measured by capital asset pricing model (CAPM model) or dividend capital model. With such advantages, the dividend capital model is increasingly used. With restrictions on data sources, cost of equity is estimated according to the PEG model (Easton, 2004), which is adjusted as follows: t Specifically, for stateowned companies (the percentage of state ownership greater than 50%) is after January 31 annually, and other owned companies are after March 31 annually.

Control variables measurement
Company size is an important control variable, which affects the relationship between environmental disclosure and the cost of equity (El Ghoul et al., 2011). Hillman and Keim (2001) argued that large-sized companies have higher levels of environmental disclosure than small and medium-sized companies, due to limited resources to maintain corporate social and environmental responsibility activities compared to larger companies with more infrastructure and higher cash flow. In this study, company size is measured by logarithm of total assets and it is denoted by SIZE.

Financial leverage
According to Brammer et al. (2006), companies with the low level of financial leverage often fiel less pressure by stakeholders (creditors). Companies with the low level of financial leverage and the good financial situation will invest more in social and environmental activities than companies with the high level of financial leverage (Crisóstomo et al., 2011). In addition, companies with the high level of financial leverage will get higher bankruptcy risk; therefore, they are active in social and environmental disclosure to reduce agency cost. Financial leverage is measured by liability on total assets. Financial leverage is denoted by LEV.

Business line
According to Deegan and Gordon (1996), the business characteristics can strongly influence the relationship between social and environmental disclosure cost of equity. For example, some companies in manufacturing sector in Japan have a clearly higher level of environmental disclosure compared to non-manufacturing companies (Cooke, 1992). In this study, the business line is measured by the rate of increase in earnings per share -denoted by EPS.

Liquidity
In order to issue more shares or sell stocks from the option contracts of the company, it is required that companies have to increase the liquidity of stocks by disclosing information to stakeholders (Dhaliwal et al., 2011). However, the research results of Dhaliwal et al. (2011) and Xu et al. (2014) suggested that improving liquidity will increase cost of equity of companies. The liquidity of stocks is denoted by LIQUID. Xu et al. (2014) argued that state-owned companies perform better social and environmental re-sponsibilities and they also have the lower cost of equity compared to other companies, but the effect of implementing social and environmental responsibility in reducing cost of equity of stateowned companies is inferior. In addition, with the globalization of the economy, some researchers are also interested in the factors of foreign investors such as Cheng et al. (2015), Dowell et al. (2000). Therefore, the foreign ownership variable in this study is measured by the percentage of foreign ownership in the total number of shares of the company; and state ownership variable is measured by the percentage of state ownership at the company. The ownership structure variable is denoted by SOE and FOR.

Beta
Lambert (2009) argued that the estimated cost of equity is affected by the fluctuation of beta over time (Reverte, 2012). In this study, beta is measured according to the CAMP model, by regressing the adjusted closing stocks price and closing prices of the entire market (VN-INDEX); In summary, the control variables are presented in Table 3.

Regression model
The research uses panel data regression model to assess the impact of environmental disclosure to cost of equity of non-financial companies listed on Vietnamese stock market. The research model proposed is as follows:

Descriptive statistics
The descriptive statistics for research variables are presented in Table 4. Table 4 shows that the measurement of cost of equity (COE) of list-   (2004) gives an average value of 135.4621, the maximum value is 1015.335, the minimum value is -414.1450. The environmental disclosure index (CED) of listed companies in Vietnam is still not high with the average value of 0.2404762, the highest value is 1, the minimum value is 0. The main results found out about environmental disclosure through the review of the annual report of companies showed that the number of listed companies on Vietnamese stock market is increasing during the research period. In 2014, there were 38 companies had environmental disclosure; and in 2017, increased to 115 companies had environmental disclosure and some of them performed a very well environmental disclosure such as Vinamilk, Hau Giang pharmacy. More and more companies are aware of the importance of non-financial information disclosure. The information of environment policies, materials and energy is the most commonly publication. These are the environmental information required companies must publish in accordance with Circular 155/ T T-BTC .
The results of the regression analysis show a mixed relationship about the impact of environmental disclosure on cost of equity of listed companies on the Vietnamese stock market. Specifically, the REM model shows a positive and statistically significant correlation between the environmental disclosure and cost of equity at 10% significance level and reconfirms the effect in Table 6 Table 6 show that there is heteroscedasticity phenomenon (p < 0.05).

XTSCC
The results overcome the defect of heteroscedasticity in this research model (Table 6). Regression results show that environmental disclosure has a negative impact on cost of equity at 1% significance level. Therefore, the research hypothesis is accepted. . This means that large-size companies will not publish much environmental information to save cost of equity. There is a negative and significant correlation between environmental disclosure and LEV. It is showed that the low levels of environmental disclosure are reported by companies with high LEV and the high LEV companies cannot spend much money on environmental disclosure. This is consistent with the studies of Dhaliwal et al. The ownership structure has a positive impact on environmental disclosure, as well as on this relationship. It means that state-owned and foreign companies have lower environmental disclosure and higher cost of equity capital than other companies, because state-owned companies can be protected by the state. This result is consistent with results from the studies of Li and Zhang (2010).

CONCLUSION AND POLICY IMPLICATIONS
Based on many previous studies and the theoretical framework on the relationship between environmental disclosure and cost of equity, this study has analyzed and evaluated the impact of environmental disclosure on equity cost of listed companies on the Vietnamese stock market.
This research has contributed significantly to providing more empirical evidence for the negative impact of environmental disclosure and equity cost of listed companies on the Vietnamese stock market. This study result is consistent with many previous studies that we found a statistically significantly negative impact between environmental disclosure and cost of equity.
The results in the article are meaningful to not only managers and investors, but also the government and other regulatory agencies in helping them to issue policies related to implementation of environmental responsibility. This contributes to saving capital cost, improving value for listed companies and investors.
Any studies will exist some certain limitations and our study is the same. First, the sample size is small (n = 115) and is not highly representative of the whole market. Secondly, this study only considers the relationship between environmental disclosure and cost of equity of non-financial companies. Finally, this study uses GRI guidelines (G4) to measure the environmental information disclosure index so there are some criteria that are not suitable for the Vietnamese context. Therefore, further studies can be established on environmental disclosure index based on Circular 155/TT-BTC to build this index to suit the Vietnamese context.
Based on the empirical results, this study proposes several policy implications to improve the environmental responsibility practice in Vietnam for both the government and business organizations. The state needs to supplement and complete the current legal system in Vietnam to create a solid legal basis for the practice of environmental responsibility. Besides, the state also needs to strengthen propaganda to raise awareness of environmental responsibility and adopt policies to encourage and support companies to practice environmental responsibility. On the side of companies, there exists a need to change their awareness of environmental responsibility practice through short-term training courses, agendas, seminars, technology transfer.