Social disclosure, financial disclosure and the cost of equity capital

We test the relation between financial and social disclosure and the cost o f equity capital for a sample of Canadian firms with year-ends in 1990, 199 1 and 1992. We find that, consistent with prior research, the quantity and quality of financial disclosure is negatively related to the cost of equity capital for firms with low analyst following. Contrary to expectations, th ere is a significant positive relation between social disclosures and the c ost of equity capital. This positive relationship is mitigated among firms with better financial performance. We consider some biases in social disclo sures that may explain this result. We also note that social disclosures ma y benefit the firm through its effect on organizational stakeholders other than equity investors. (C) 2001 Published by Elsevier Science Ltd.