Corporate Social Responsibility and the Term Structure of CDS Spreads

55 Pages Posted: 18 Apr 2019 Last revised: 18 Feb 2020

See all articles by Feng Gao

Feng Gao

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick

Yubin Li

Harbin Institute of Technology, Shenzhen

Xinjie Wang

Southern University of Science and Technology

Zhaodong Zhong

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick

Date Written: February 17, 2020

Abstract

This paper examines the role of corporate social performance in the CDS market, with a focus on the differential effect conditional on the lengths of time horizons. We find that strong social performance is negatively associated with the slope of CDS term structure, by reducing the long-term credit risk and increasing the short-term credit risk. After controlling for credit ratings in a “path analysis”, we find that the direct effect of social performance remains significant, suggesting that CDS market participants incorporate this information more efficiently than credit rating agencies. Furthermore, the effects of social performance are stronger for firms with speculative-grade ratings, smaller size, or less analyst coverage.

Keywords: corporate social responsibility (CSR), credit default swap (CDS), term structure

JEL Classification: G10, G30, G32, M14, M41

Suggested Citation

Gao, Feng and Li, Yubin and Wang, Xinjie and Zhong, Zhaodong, Corporate Social Responsibility and the Term Structure of CDS Spreads (February 17, 2020). Available at SSRN: https://ssrn.com/abstract=3356165 or http://dx.doi.org/10.2139/ssrn.3356165

Feng Gao (Contact Author)

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick ( email )

Janice H. Levin Bldg., Room 121
94 Rockafeller Road
Piscataway, NJ 08854-8054
United States

Yubin Li

Harbin Institute of Technology, Shenzhen ( email )

University Town
Nanshan District
Shenzhen, Guangdong 518055
China

Xinjie Wang

Southern University of Science and Technology ( email )

1088 Xueyuan Blvd
Xili, Nanshan District
Shenzhen, Guangdong 518055
China

Zhaodong Zhong

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick ( email )

Department of Finance, Rutgers Business School
100 Rockafeller Road
Piscataway, NJ 08854
United States

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