The relationship between firm risk, capital structure, cost of equity capital, and social and environmental sustainability during the COVID-19 pandemic

Arash Arianpoor · Seyyed Sajjad Naeimi Tajdar

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Corporate Social Responsibility Reporting Corporate Finance and Governance COVID-19 Pandemic Impacts

Abstract

Purpose This study aims to explore the relationship between firm risk, capital structure, cost of equity capital and social and environmental sustainability during the COVID-19 pandemic for companies listed on Tehran Stock Exchange. Design/methodology/approach To this aim, the information about 190 companies in 2014–2020 was retrieved to be analyzed. The total risk and systematic risk were used as the indicators of company risk; the industry-adjusted earnings price ratio (IndEP) and GORDON were used for the cost of equity capital. To measure social sustainability and environmental sustainability, the procedure suggested by Arianpoor and Salehi (2020) was used. Findings Underleveraged firms have had a lower total risk during the COVID-19 pandemic, while overleveraged firms have not had a higher risk during this time. In overleveraged firms, using systematic risk has a negative impact on social sustainability during the COVID-19 pandemic. In overleveraged firms, using total risk and systematic risk has a significant negative impact on environmental sustainability in the pandemic. Besides, overleveraged firms have a lower cost of equity capital (IndEP) during COVID-19. Originality/value To the best of the authors’ knowledge, no similar study has so far examined the joint impact of COVID-19 and corporate risk on social and environmental sustainability and also the joint impact of COVID-19 and capital structure on the cost of equity. This study contributes to the related literature by providing corporations with insightful post-pandemic directions on capital structure decisions and social and environmental activities. Furthermore, this research and the relevant findings can help understand and develop social responsibility in Iran as a developing country.

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References

1964CAPITAL ASSET PRICES: A THEORY OF MARKET EQUILIBRIUM UNDER CONDITIONS OF RISK*2018Correlation Coefficients: Appropriate Use and Interpretation 2017Social Capital, Trust, and Firm Performance: The Value of Corporate Social Responsibility during the Financial Crisis 1997Disclosure level and the cost of equity capital.2005The market pricing of accruals quality 2005The Relationship Between Corporate Philanthropy And Shareholder Wealth: A Risk Management Perspective 1973A STATE‐PREFERENCE MODEL OF OPTIMAL FINANCIAL LEVERAGE 2020Financial markets under the global pandemic of COVID-19

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2023The impact of earnings volatility, environmental uncertainty and COVID-19 pandemic on accounting comparability in an emerging economy

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