Abstract
This article investigates the association between CSR and marginal credit costs of European companies. We provide instance for a negative association based on a variety of model specifications and fine-grained measures for CSR. These results can be explained in light of the increasing relevance of socially responsible investors for financing costs of companies. We further apply the risk management perspective on CSR to the credit market and show that the insurance-like property of CSR is especially relevant for companies in relative financial distress as measured by the interest coverage ratio. This study also examines the association between CSR assurance and credit costs and provides evidence that creditors reward non-financial insurance by reduced required rate of returns. Finally, we contribute to the corporate governance literature by modelling the association between different board characteristics and credit costs.
Highlights
Intensified by the recent financial crisis of 2008/09, the concept of corporate social responsibility (CSR) is increasingly important for modern business and society in Europe (European Commission 2014a; Kudłak et al 2018)
In order to widen the scope of our analysis, we investigate the moderating impact of financial distress, the relevance of CSR assurance (CSRA) and the impact various board characteristics in this context
This study extends on the risk management perspective on CSR by theoretically and empirically examining how the European credit market values CSR
Summary
Intensified by the recent financial crisis of 2008/09, the concept of corporate social responsibility (CSR) is increasingly important for modern business and society in Europe (European Commission 2014a; Kudłak et al 2018). Reflective of Department of Socioeconomics, Faculty of Business, Economics and Social Sciences, University of Hamburg, Renzelstraße 7, 20146 Hamburg, Germany this development, the European Commission (2018) recommends that credit rating agencies and financial institutions conduct long-term risk analysis, which includes the consideration of environmental-, social-, and governmental (ESG) factors. Financial institutions who voluntarily adopt the Equator Principles pledge to “identify, assess and manage environmental and social risks and impacts in a structured way, on an ongoing basis” (Equator Principles 2013, p.2). Some of the largest and most prominent European banks are committed to disclosing how their credit decisions and business practices align to ESG-specific matters (Chava 2014)
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