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

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.

KEY WORDS:

• cost of debt financing
• disclosure quality
• mandatory CSR disclosure
• political connections
• urban governance

Supplementary Material

Supplemental data for this article can be accessed on the publisher’s website.

Notes

1. Ignoring voluntary CSR disclosure fits the situation in China, where no significant difference is found between voluntary and mandatory disclosure; see Table S3.

Additional information

Funding

This work was supported by the National Natural Science Foundation of China [71702102, 71772123].