Corporate Social Responsibility, Credit Rating, and Private Debt Contracting: New Evidence from Syndicated Loan Market

53 Pages Posted: 24 Mar 2017 Last revised: 25 Mar 2017

See all articles by Sung C. Bae

Sung C. Bae

Bowling Green State University - Department of Finance

Kiyoung Chang

University of South Florida Sarasota-Manatee - College of Business

Ha-Chin Yi

Texas State University, San Marcos - Department of Finance and Economics

Date Written: March 23, 2017

Abstract

We examine the impact of corporate social responsibility (CSR) activities on loan spreads of syndicated bank loans, with a particular interest in how CSR and credit ratings are interrelated as a joint determinant of loan spreads. Focusing on private debt contracts, we show that both CSR strengths and concerns are related to their loan spreads. CSR strengths work to lower firm risk, hence reducing the loan spread, whereas CSR concerns increase firm risk, thus increasing the loan spread. Once we include detailed credit rating information in the models, however, CSR concerns lose significance, but CSR strengths remain significantly related to the loan spread. We also find that both CSR strengths and CSR concerns are related to loan spread for non-rated firms, but the CSR concern effect is stronger than the CSR strength effect for these firms. A further test shows that firm risk measured by stock return volatility plays as a direct channel through which a firm’s CSR activities affect loan spreads, whose result lends further support to our main results. Overall, our results provide strong evidence that CSR matters to the pricing of loan contracts beyond credit rating information and the results remain robust to the possible firm size effect and the endogeneity issues.

Keywords: Corporate social responsibility, Loan spread, Credit ratings, Private debt contracting

JEL Classification: G24, G34

Suggested Citation

Bae, Sung C. and Chang, Kiyoung and Yi, Ha-Chin, Corporate Social Responsibility, Credit Rating, and Private Debt Contracting: New Evidence from Syndicated Loan Market (March 23, 2017). Available at SSRN: https://ssrn.com/abstract=2939853 or http://dx.doi.org/10.2139/ssrn.2939853

Sung C. Bae

Bowling Green State University - Department of Finance ( email )

Business Administration 201
Bowling Green, OH 43403
United States
419-372-8714 (Phone)
419-372-2875 (Fax)

Kiyoung Chang

University of South Florida Sarasota-Manatee - College of Business ( email )

8350 N. Tamiami Trail, SMC-C263
Sarasota, FL 34243-2025
United States
9413594359 (Phone)
9413594367 (Fax)

Ha-Chin Yi (Contact Author)

Texas State University, San Marcos - Department of Finance and Economics ( email )

601 University Drive
San Marcos, TX 78666
United States
512-245-3251 (Phone)

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