Corporate Social Responsibility and Bond Price at Issuances: U.S. Evidence

Hong Zhao,Xinting Zhen,Hao Shen,Wei Du

doi:10.3390/su132313123

Abstract

Bondholders are arm’s-length lenders with limited insider information. In this paper, we explore whether corporate social responsibility (CSR) activities could work as an information channel for bondholders to better understand the riskiness of bond-issuing firms. We find a significant negative relation between CSR scores and corporate bond yield spread, especially for firms which invest heavily in diversity and community relations, suggesting that CSR firms are less risky. The result is robust to different model specifications and endogeneity issues. In addition, the negative relation between the CSR score and bond yield spread is significant only if a firm has a strong internal governance mechanism.

Highlights

Issuances: U.S Evidence.Corporate social responsibility (CSR) has become a common practice in the operation of firms over the past three decades
corporate social responsibility (CSR) Index and Bond Yield Spread at Issuance
We examine the relation between CSR score and corporate bond yield spread

Summary

Introduction

Corporate social responsibility (CSR) has become a common practice in the operation of firms over the past three decades. In the year 2020, 96 percent of the world’s largest companies issued a yearly CSR report [1]. Being socially responsible could be costly and sometimes mean abandoning positive NPV projects [2], CSR strategies could be rewarding for shareholders in the long run in terms of profitability, financial performance, and corporate sustainability [3,4,5,6,7,8]. Companies take CSR-related stakeholder relationships as a way to achieve their ultimate objective of maximizing shareholder values [9,10,11]. El Ghoul et al [12]

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