The Impact of Financial and Sustainability Performance on the Cost of Capital

DOI

10.2991/978-94-6463-990-2_29How to use a DOI?

Keywords

Sustainability Performance; Financial Performance; Cost of Capital

Abstract

This research seeks to find out how a company’s financial success and commitment to sustainability influence the amount they pay for capital. This amount is what businesses owe to their investors and lenders for the funds they receive. The returns that are anticipated depend on how these parties view the company’s performance and risk level. Ideally, they look for strong performance and minimal risks. The research included a sample of 56 manufacturing firms, with a total of 222 instances recorded. Information was collected using documentation methods and analyzed with STATA software. The findings from the Chow and Hausman tests indicate that the Fixed Effects Model (FEM) is the most appropriate method. The study shows that the sustainability performance, which involves applying environmental, social, and governance standards, along with return on equity (ROE), does not have a major influence. Conversely, the debt-to-equity ratio, the size of the company, and cash flow from operations do significantly impact capital costs. This study indicates that investors and lenders prioritize a company’s ability to manage cash for covering expenses and repaying debts rather than focusing on sustainability measures when making funding decisions. These findings emphasize the need for the government to strengthen its regulatory policies, introduce measures for sustainability performance, and set clear rewards and penalties to raise awareness among businesses, lenders, and investors.

Copyright

© 2026 The Author(s)

Open Access

Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

Download article (PDF)

TY  - CONF
AU  - Etti Ernita Sembiring
AU  - Arif Afriady
AU  - Arry Irawan
AU  - Esau Jadee Hartanto
AU  - Muhammad Daffa Nadiwinata
AU  - Bunga Maulida
PY  - 2026
DA  - 2026/02/13
TI  - The Impact of Financial and Sustainability Performance on the Cost of Capital
BT  - Proceedings of the 7th International Conference on Applied Economics and Social Science (ICAESS 2025)
PB  - Atlantis Press
SP  - 449
EP  - 458
SN  - 2352-5428
UR  - https://doi.org/10.2991/978-94-6463-990-2_29
DO  - 10.2991/978-94-6463-990-2_29
ID  - Sembiring2026
ER  -