55 Pages Posted: 15 Jan 2012 Last revised: 23 Jan 2017
Date Written: April 1, 2012
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: 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