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Corporate Environmental Management and Credit Risk

44 Pages Posted: 21 Sep 2010 Last revised: 25 Jun 2014

Rob Bauer

Maastricht University

Daniel Hann

Deutsche Asset & Wealth Management; European Centre for Corporate Engagement; Maastricht University

Date Written: December 23, 2010

Abstract

This study analyzes corporate environmental management and its implications for bond investors. We provide support for the view that the credit standing of borrowing firms is influenced by legal, reputational, and regulatory risks associated with environmental incidents. Using environmental information on 582 U.S. public corporations between 1995 and 2006, we document that (i) environmental concerns are associated with a higher cost of debt financing and lower credit ratings, and (ii) proactive environmental practices are associated with a lower cost of debt. The results are robust to numerous controls for company and bond specific characteristics, alternative model specifications, and industry membership.

Keywords: Environmental Risk Management, Cost of Debt, Credit Ratings, Litigation, Regulatory Risk, Reputation Risk, Climate Change

JEL Classification: G32, G33, Q51, Q56, M49, K32

Suggested Citation

Bauer, Rob and Hann, Daniel, Corporate Environmental Management and Credit Risk (December 23, 2010). Available at SSRN: https://ssrn.com/abstract=1660470 or http://dx.doi.org/10.2139/ssrn.1660470

Rob Bauer

Maastricht University ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands
+31 43 3883871 (Phone)

Daniel Hann (Contact Author)

Deutsche Asset & Wealth Management ( email )

Mainzer Landstrasse 11-17
Frankfurt, Hesse 60329
Germany
+49-69-910-13398 (Phone)

HOME PAGE: http://https://www.deutsche-bank.de/de/content/company/Asset-and-Wealth-Management.htm

European Centre for Corporate Engagement ( email )

School of Business and Economics
Tongersestraat 53
Maastricht, Limburg 6211LM
Netherlands

HOME PAGE: http://www.corporate-engagement.com/

Maastricht University ( email )

Tongersestraat 53
Maastricht, 6211 LM
Netherlands
+31433884822 (Phone)
+31433884875 (Fax)

HOME PAGE: http://www.fdewb.unimaas.nl/finance/?page=member&id=201

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