The Effect of Corporate Social Responsibility on Cost of Corporate Bond: Evidence from China

ABSTRACT

This article examines the link between corporate social responsibility(CSR) and cost of bond(COB) in China. We find that there exists a negative relationship between CSR and COB. In particular, when the bond issuer is a state-owned enterprise, or when the credit rating of bond is high, the negative association between CSR and COB is strengthened. The findings indicate that CSR plays a significant role in reducing the risk premium of corporate bonds through an insurance-like effect. Moreover, the effect of CSR on COB also depends on contextual factors such as firm ownership and bond credit rating.

KEY WORDS:

• bond credit rating
• corporate bonds
• cost of debt financing
• CSR
• firm ownership

Notes

^1. The calculations are as follows: LnCS_{Ln(CSR 3rd)} – LnCS_{Ln(CSR 1st)} = −0.066×(Ln55.510–Ln19.925) = −0.0677. Thus, CS_{Ln(CSR 3rd)}/CS_{Ln(CSR 1st)} = e⁻°.°⁶⁷⁷ = 93.45%. This ratio reflects the effect on the bond spread when firm’s CSR score moves from the first to the third quartile, suggesting a 6.55% decrease in credit spread.

Additional information

Funding

This article is sponsored by the National Natural Science Foundation of China (Approval No. 71672055).