The Effects of Corporate Social Performance on the Cost of Corporate Debt and Credit Ratings

Abstract

This study investigates the differential impact that various dimensions of corporate social performance have on the pricing of corporate debt as well as the assessment of the credit quality of specific bond issues. The empirical analysis, based on an extensive longitudinal dataset, suggests that overall, good performance is rewarded and corporate social transgressions are penalised through lower and higher corporate bond yield spreads respectively. Similar conclusions can be drawn when focusing on either the bond rating assigned to a specific debt issue or the probability of it being considered to be an asset of speculative grade. Additional investigation shows that these relationships are more pronounced for bonds with higher maturities and those issues assigned with either high or very low ratings.

Keywords: Corporate Social Responsibility, CSR, CSP, Credit Ratings, Cost of Debt, Credit Spreads, Corporate Bonds

JEL Classification: C33, G32, M14