Does Corporate Social Responsibility Facilitate Public Debt Financing?

51 Pages Posted: 30 Aug 2019 Last revised: 19 Jan 2020

See all articles by Xin (Simba) Chang

Xin (Simba) Chang

Nanyang Business School, Nanyang Technological University

Bin Xu

University of Leeds

Yung Chiang Yang

University College Dublin (UCD) College of Business

Date Written: January 15, 2020

Abstract

This study investigates debt market benefit of socially responsible firms. We find that better CSR performance increases the share of public debt to total debt. Such effect is stronger for firms facing high agency and information costs, confirming that CSR drives debt structure by mitigating these frictions. The effect of CSR is weaker for firms in sinful industries or in low-trust regions where CSR is likely to be viewed as window dressing. Furthermore, utilizing BP oil spill event, we document that the effect of CSR becomes stronger after this event but only for non-sinful firms. This finding indicates that investors seem to value CSR more after a severe environmental disaster only for non-sinful firms, and they still perceive CSR as window dressing for sinful firms. Our evidence survives endogeneity checks and suggests that CSR facilitates firms’ access to public debt market especially when CSR is perceived as a genuine commitment.

Keywords: public debt, debt ownership structure, corporate social responsibility, window dressing, financial constraints

Suggested Citation

Chang, Xin and Xu, Bin and Yang, Yung Chiang, Does Corporate Social Responsibility Facilitate Public Debt Financing? (January 15, 2020). Available at SSRN: https://ssrn.com/abstract=3442970 or http://dx.doi.org/10.2139/ssrn.3442970

Xin Chang

Nanyang Business School, Nanyang Technological University ( email )

S3-B1B-76 Nanyang Avenue
Singapore, 639798
Singapore

HOME PAGE: http://www.ntu.edu.sg/home/changxin

Bin Xu (Contact Author)

University of Leeds ( email )

Leeds
United Kingdom

Yung Chiang Yang

University College Dublin (UCD) College of Business ( email )

Belfield
Dublin, 4
Ireland

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