CSR governance and costs of capital: evidence from strategy scores and board-level oversight

Abstract

This study examines whether corporate social responsibility (CSR) governance reduces firms’ financing costs in the Gulf Cooperation Council (GCC), a region experiencing rapid environmental, social, and governance (ESG)-related changes, for which causal evidence remains limited. Using a panel of 595 firm-year observations from 191 listed firms across the region during 2020–2023, the analysis evaluates three dimensions of CSR governance–strategic CSR orientation, board-level CSR committee oversight, and a composite CSR governance index–through ordinary least squares, two-stage least squares, and high-dimensional fixed effects estimation. The results indicate that stronger CSR governance is consistently associated with lower equity costs and a lower weighted average cost of capital, whereas no statistically significant relationship is observed for the cost of debt. CSR committee adoption exhibits the largest magnitude of economic effect. Robustness and institutional moderation analyses further show that CSR governance effects are stronger in industries with lower ESG adoption but weaken following recent regulatory tightening. The findings provide causal evidence that governance-embedded CSR reduces equity-based financing costs in legitimacy-driven emerging markets. This study contributes insights into stakeholder, agency, and legitimacy perspectives and offers implications for policymakers, investors, and firms seeking to enhance capital market efficiency through CSR governance.