**5. Conclusions**

The financial literature has examined the relationship between CSR disclosure and firm risk. However, little attention has been given to the dynamic behavior of CSR disclosure. Some studies show that CSR disclosure changes over time [13,22,30]. We try to fill in this gap by investigating the impact of CSR disclosure on the cost of capital over time. To that end, we examined a sample of 430 US firms belonging to the S&P 500 observed over 9 years, from 2011 to 2019.

Like [22], we put in evidence that CSR disclosure effects change over time. More specifically, [22] shows that the reactions to CSR scores are unfavorable during the first few years of the study but over time become less and less unfavorable. In our study, the empirical findings are generally in line with agency theory assumptions. Although we have put in evidence that the reaction to CSR disclosure changes over time, the dynamic effect of each dimension of CSR disclosure on the cost of capital is different. Over time, the effect of social disclosure is more important. The effect of governance disclosure is negative during the first two windows of years, but during the subsequent windows, the effect becomes positive. Finally, the effect of environmental disclosure on the cost of capital is observed during the first four windows of years. After that time span, no significant effect is observed. This highlights the dynamic effect of each component of CSR disclosure on the cost of capital. Our results are consistent with the stream of the literature viewing firms as more reluctant to engage in social and governance practices because they perceive them as a threat or a burden and because these two dimensions do not decrease firm risk. Moreover, over time, debtholders and shareholders do not place enough emphasis on social and governance activities (ESG) in assessing firm risk. Our results on environmental disclosure are useful. Business managers have no incentives to enhance the levels of environmental disclosure since the conformity of most firms to the Environmental Protection Agency requirements (2011) attenuates the effect of this disclosure on firm risk in the years following the adoption of these requirements. However, during the last year, firms' environmental disclosure was largely driven by political/social factors rather than economic factors, leading managers to increase the levels of such disclosure. For economists, a trade-off between the cost and the benefit of environmental disclosure is valuable over time. Moreover, over the past years, disclosing environmental information has been more costly than disclosing information on other dimensions (social and governance) [8]. For academics, the environmental disclosure–firm risk relationship should be more at the forefront by integrating factors that moderate this relationship such as green intellectual capital, manager attributes, etc.

The implications of our results for the literature dealing with CSR disclosure and cost of capital are both interesting and quite straightforward.

For the CSR disclosure literature, this study has several implications. First, our study elucidates the dynamic of CSR disclosure. Second, it puts in evidence the flip side of CSR disclosure. Finally, over time, CSR disclosure is not the best strategic decision taken to reduce firm risk.

For the cost of capital literature, its assessment cannot be correctly achieved without taking into consideration the impact of the three dimensions of CSR disclosure: the environmental, the social, and the governance dimensions. Second, we add to the studies on the cost of capital a new obstacle: social and governance disclosure.

The managerial implications of our study include the consideration of whether enhanced CSR disclosure is a good strategy for reducing risk over time, the need to focus on low levels of the cost of capital when attempting to produce informative CSR disclosure experiences and potentially distinct strategies for inducing stakeholder satisfaction and especially shareholders' and debtholders' satisfaction. We have also identified some managerial implications of our conceptualization and analysis that can be used by managers

to review their strategies for improving CSR disclosure. Moreover, we stress that the CSR disclosure strategy requires the support of the whole organization, not only of the CEO. Finally, when establishing a CSR disclosure strategy, managers need to answer five questions: To whom does the CSR disclosure strategy need to be conducted? What should be done for key stakeholders such as equity capital providers and debtholders regarding CSR disclosure? In what way it should be accomplished? How formalized should the strategy be? Should the strategy be the same over time?

The findings from this study could also encourage further research and some managerial solutions.

A further study is needed to provide the excuse to take the strategic action we already thought was right regarding the level of CSR disclosure. In addition, more research is needed, as our results suggest that some assessment should be made about the trade-off between debt cost and equity cost. More precisely, it is interesting for future research to study the separate effect of CSR disclosure on each component of the cost of capital. Moreover, our results are important initial results that need to be replicated in other countries in a different setting to strengthen their generalizability. Because we limited our sample to 430 US firms listed on the S&P 500, it would be more interesting for future research to extend the CSR disclosure–cost of capital relationship on a global sample, including European markets and several emerging markets such as China, Brazil, Mexico, and India where CSR practices are flourishing. Finally, it is interesting to study the effect of CSR disclosure on the cost of capital during a turbulent period and especially during the COVID-19 pandemic, as this crisis is unprecedented and firms were found to be vulnerable.

As for managerial solutions, strong but prudent CSR disclosure policies are required. The role of equity capital providers and debtholders is to be more concerned over time. More precisely, *first*, firms have to be more aware of CSR disclosure benefits and be updated on new and better changes in such a policy. *Second*, a careful CSR disclosure strategy is important to avoid a high firm risk. Thus, the proper planning of CSR disclosure engagements may prevent a high cost of capital. Third, an adaptation of firms to stakeholders' interests is crucial to gain their trust, but CSR disclosure does not have to play only a self-defense strategy. *Fourth*, as we have identified some undesirable outcomes of CSR disclosure activities on equity capital providers and debtholders, firms have to be more cautious when adopting CSR disclosure strategies.

Regardless of our findings, this study has some limitations. Because of the lack of good instruments, our findings may be biased and subject to variable omissions. This study would have provided better results using the amount of analyst coverage as a control variable, for instance.

**Author Contributions:** I.K. conceptualized the paper and carried out literature and complied the original and revised draft. N.L. carried out data curation, empirical analysis. All authors have read and agreed to the published version of the manuscript.

**Funding:** This research received no external funding.

**Data Availability Statement:** Data sharing is not applicable to this article.

**Conflicts of Interest:** The authors declare no conflict of interest.

#### **References**


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