Corporate Social Responsibility and the Term Structure of CDS Spreads
51 Pages Posted: 18 Apr 2019
Date Written: March 14, 2019
This paper examines the role of corporate social performance in the CDS market. We find that strong social performance is negatively associated with the slope of CDS term structure, by reducing the long-term credit risk relative to the short-term credit risk. After controlling for credit ratings in a path analysis, the direct effect of social performance remains significant, suggesting that CDS market participants incorporate this information more fully 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
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