Bondholders’ returns and stakeholder interests: When are they aligned?

Abstract

Using Barney’s (2018) stakeholder perspective of resource-based theory (SRBT), we argue
that bondholders represent the ultimate fixed claimants who value corporate social
responsibility (CSR) in relation to the firms’ risk. Bondholders’ returns and the stakeholders’
interests are aligned when firms have concerns or controversies (risk) but they are not aligned
for firms’ CSR strengths (investments) because it represents higher asset substitution risk.
The alignment and misalignment of bondholders and stakeholders’ interests are weaker for
bonds with longer maturities but greater after a negative shock in credit markets. Analysing a
sample of 5,240 bonds in a portfolio setting from 425 U.S. companies during 2001 to 2014,
we find evidence to support our hypotheses. We demonstrate that the bondholders’ and
stakeholders’ interests are aligned under above conditions.

Keywords: Bond portfolio returns; fixed claimants; stakeholder; CSR concerns and controversies; CSR strengths.

JEL Classification: G11, G12, G23, M14