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Corporate Environmental Management and Credit Risk

Rob Bauer

Maastricht University

Daniel Hann

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

December 23, 2010

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.

Number of Pages in PDF File: 44

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

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

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Date posted: September 21, 2010 ; Last revised: June 25, 2014

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

Contact Information

Rob Bauer
Maastricht University ( email )
P.O. Box 616
Maastricht, 6200 MD
+31 43 3883871 (Phone)
Daniel Hann (Contact Author)
Deutsche Asset & Wealth Management ( email )
Mainzer Landstrasse 178-190
Frankfurt, Hesse 60327
+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
HOME PAGE: http://www.corporate-engagement.com/
Maastricht University ( email )
Tongersestraat 53
Maastricht, 6211 LM
+31433884822 (Phone)
+31433884875 (Fax)
HOME PAGE: http://www.fdewb.unimaas.nl/finance/?page=member&id=201
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