The Impact of Mandatory CSR Disclosure on the Cost of Debt Financing: Evidence from China

Abstract

ABSTRACT This paper studies the impact of mandatory corporate social responsibility (CSR) disclosures on cost of debt financing (COD) in China, using a quasi-natural experiment that mandates a subset of listed firms to issue CSR reports. We find that these firms exhibit cheaper debt financing after they are subject to this mandate and easier access to long-term bank loans, and the decrease in the COD is more pronounced among firms with longer CSR reports and higher CSR scores and that follow Global Reporting Initiative (GRI) guidelines. In addition, we introduce regulatory theory to verify firms that are politically connected enjoy a greater reduction in the COD after the mandate than those that are not politically connected. Our results have important implications for our understanding of the economic consequences of mandatory CSR disclosures from the perspective of the debt market.