Business sustainability performance on cost of equity in Japan market.

Abstract

Nowadays business sustainability is the one interesting business trend because this trend is useful for all stakeholders throughout our world. Business sustainability performance consists of two different dimensions. First is economic sustainability performance (ECON) which focuses on profitability of firms. The second dimension is non-economic sustainability which considers environmental, social response and corporate governance or ESG. This research studies in an effect between both sustainability performance and cost of equity by using panel regression because cost of equity is one of most expensive cost in firms thus if cost of equity can be reduced firm can get more value, profit and be sustained in a long term. This study uses data from Tokyo Stock Exchange which is one of the leaders in sustainable developed countries in Asia because this research uses as motivation to other countries in ASIAN to develop and implement ESG into firms. This study uses panel regression model with 119 firms by observation 805 firm-year from 2002 to 2018. The results in Japan market show economic sustainability performance is more effective to cost of equity than non-economic sustainability performance. The proxies of cost of equity (CAPM and Beta) are negatively affected by operation effort (revenue and advertisement expense) and equity effort factors (ROE and dividend paid). Most of all non-economic sustainability (ESG) is not statistically significant to cost of equity.