Competition through environmental CSR engagement and cost of equity capital

We examine the capital market outcomes of firms' competition over environmental corporate social responsibility (CSR) ratings. We hypothesize that if environmental CSR engagement contributes to reputational advantage that lead to lower cost of equity capital, firms would compete to acquire such reputational advantage in the market for environmental ratings. In line with our prediction, we find that firms that are further away from the worst practices common to their "toxic" industry peers have a lower cost of equity financing. Moreover, consistent with the resiliency argument, we document that higher relative environmental CSR performance help mitigate the negative impact of the 2008 global financial crisis on the cost of equity capital. Our results are robust to a battery of sensitivity checks, including use of multiple estimation methods, alternative proxies of cost of equity capital measures and potential endogeneity concerns.