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The efficacy of sustainability reporting towards cost of debt and equity reduction

Shad MK, Lai FW, Shamim A, McShane M

Environ Sci Pollut Res Int, 2020 Jun;27(18):22511-22522.
PMID: 32319056 DOI: 10.1007/s11356-020-08398-9

This paper empirically investigates the impact of overall sustainability reporting as well as its components (economic, environmental, and social sustainability reporting) on the cost of debt and equity capital for Malaysian oil and gas companies. The data was collected from 41 publicly listed oil and gas companies in Malaysia for the period from 2008 to 2017. Qualitative information was gathered for sustainability reporting and then converted into quantitative form by assigning weights according to the extent of reporting. The cost of capital information was sourced through Thomson Reuters Datastream. Panel data analysis was employed using generalized least square (GLS) random effects regression to examine the relationship between sustainability reporting and cost of capital. Firm reputation, size, and profitability were included as control variables. The findings indicate that overall sustainability reporting and one component, economic sustainability reporting, reduce both cost of debt and cost of equity. However, environmental sustainability reporting reduces only the cost of debt but does not reduce the cost of equity. Social sustainability reporting shows no effect on the cost of debt or equity. The findings of this paper should be useful for regulators, legislators, shareholders, creditors, and practitioners in pursuing sustainability practices that not only improve economic and environmental performance but also enhance overall performance by reducing the cost of capital. The results of the paper highlight that companies investing in sustainability can generate positive value through the enhancement of reputational capital. This study is the first to empirically investigate the relationship between overall sustainability reporting, including its three components, and the cost of both debt and equity capital.
Fulltext Do domestic innovations promote trade openness? Empirical evidence from emerging economies

Khan MN, Jan AA, Asif M, Lai FW, Shad MK, Shadab S

Heliyon, 2023 Dec;9(12):e22848.
PMID: 38076083 DOI: 10.1016/j.heliyon.2023.e22848

PURPOSE: Innovation activities have gained much importance due to their pivotal role in achieving economic growth - directly by increasing productivity and - indirectly by increasing the degree of trade openness. This study aims to focus on the indirect channel, a rarely explored area of research, especially in the context of emerging economies.
METHODOLOGY: To achieve the aim of the study, four proxies of innovation (resident patent applications, nonresident patent applications, scientific and technical journal articles, and research and development expenditures) are used to establish a robust relationship between innovation activities and trade openness in BRICS economies. Panel data from 2000 to 2020 is obtained from World Development Indicators and Penn World Tables. Econometric techniques of panel data such as fixed effect and generalized least squares are employed to extract results from the specified models.
FINDINGS: The findings of the study revealed that three proxies of innovation (i.e., resident patent applications, nonresident patent applications, scientific and technical journal articles) have a significant positive role in improving trade openness in the BRICS economies. However, the fourth proxy of innovation i.e., research and development expenditures had a negative impact on the degree of trade openness. Besides, innovation activities such as inflation rate and foreign direct investment have also influenced the degree of trade openness positively and significantly. Conversely, GDP per capita had a negative relationship with trade openness. Moreover, domestic investments showed a positive influence on the degree of trade openness while employment had a negative and insignificant influence on the degree of trade openness. Finally, the causality analysis revealed a one-way relationship running from innovations to trade openness.
IMPLICATIONS: In view of the results obtained, the policymakers of the BRICS economies might focus on encouraging innovation activities to enhance the degree of trade openness. Increased trade openness will consequently contribute to economic growth enormously and thus the attainment of sustainable development goals (SDG-8). Policymakers are also suggested to encourage FDI inflows and further ensure a moderate inflation rate to improve the degree of trade openness and hence accelerate economic growth.
ORIGINALITY: This study focused on examining the nexus between innovation activities and trade openness in emerging economies, which is indeed an interesting but rarely explored area of research. The findings of the study might help the policymakers of the BRICS economies in formulating policies regarding trade openness and innovation activities.

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