Corporate Social Responsibility and the Cost of Corporate Bonds

55 Pages Posted: 15 Jan 2012 Last revised: 23 Jan 2017

Wenxia Ge

University of Manitoba - Asper School of Business

Mingzhi Liu

University of Manitoba

Date Written: April 1, 2012

Abstract

This study examines how a firm’s corporate social responsibility (CSR) performance is associated with the cost of its new bond issues. Using credit ratings as an ex ante cost of debt, we find that better CSR performance is associated with better credit ratings. After controlling for credit ratings, our results show that better CSR performance is associated with lower yield spreads but some of the effect is absorbed by credit ratings. When we examine CSR strengths and concerns separately, we find that a higher CSR strength (concern) score is associated with lower (higher) yield spreads. Our results on the effect of firm performance on seven individual CSR dimensions are generally consistent with our main findings. Our results indicate that firms with better CSR performance are able to issue bonds at lower cost and that both CSR strengths and concerns are considered by bondholders. Additional subsample test results suggest that the association between CSR performance and bond yield spreads is more pronounced in investment-grade and non-Rule 144a bonds, for financially healthier bond issuers, for issuers with weaker corporate governance and higher information asymmetry, and for issuers operating in environmentally sensitive industries.

Keywords: Corporate social responsibility; Information asymmetry; New corporate bond issue; Cost of debt

JEL Classification: G12; G32; M14

Suggested Citation

Ge, Wenxia and Liu, Mingzhi, Corporate Social Responsibility and the Cost of Corporate Bonds (April 1, 2012). Journal of Accounting and Public Policy, Forthcoming; CAAA Annual Conference 2012. Available at SSRN: https://ssrn.com/abstract=1985218 or http://dx.doi.org/10.2139/ssrn.1985218

Wenxia Ge

University of Manitoba - Asper School of Business ( email )

181 Freedman Crescent
Winnipeg, Manitoba R3T 5V4
Canada
1-204-474-9331 (Phone)

Mingzhi Liu (Contact Author)

University of Manitoba ( email )

501 F.A. Bldg
Winnipeg R3T 5V4, Manitoba R3T 5V5
Canada

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