Impact of CSR on Cost of Capital: Evidence from Pakistan Using a GRI-Based Country Specific CSR Index

Purpose: This study aims to re-examines the relationship between corporate social responsibility and the cost of capital, using evidence from Pakistan. Using country specific CSR Index, specific to Pakistan and developed from the Global Reporting Initiative (GRI) dimensions, which include labor practices, human rights, social responsibility, and product responsibility, this study measures companies’ commitment to CSR more comprehensively. Design/Methodology/Approach: The sample of the study is 292 nonfinancial firms listed on Pakistan stock exchange from the period 2014-2024. Combined ordinary least squares (OLS), fixed effects, and random effects models were used to estimate the relationship. The Hausman specification test supports the fixed-effects estimator as the preferred model. Findings: Empirical results show a significant negative relationship between corporate social responsibility (CSR) and the cost of capital, indicating that firms with strong CSR performance benefit from lower financing costs. The results support stakeholder theory and signaling theory, suggesting that CSR reduces information asymmetry, strengthens corporate reputation, and reduces perceived risk to investors. Implications/Originality/Value: This study contributes to literature by extending the evidence on the relationship between CSR and the cost of capital from a developing economy. This study use a context-specific CSR measure instead of generic measure of CSR. The results also offer practical implications for managers, investors, and policymakers seeking to promote CSR reporting for reducing financing costs and developing firm reputation.