Corporate Social Responsibility and Credit Costs

Project Description:

The aim of the study is to investigate the impact of Corporate Social Responsibility (CSR) on the credit costs of companies. The academic research on financial effects of CSR has concentrated on costs of equity, but effects on costs of debt are relatively unexplored.

Our study also extends the literature by conducting an international, worldwide investigation. Almost all papers on CSR and costs of finance have a focus on the United States and it is by no means obvious that the results apply to non-US countries as well. Based on theoretical considerations and the results on equity markets we hypothesize that a higher engagement in CSR decreases costs of debt. But the results might be country-specific as CSR could be influenced, for example, by country-specific factors like creditor rights, legal enforcement, or organisational culture.

A second focus is on the credit costs of companies that belong to so called “sin” industries (such as alcohol, tobacco, gambling, weapons), a topic which has not yet been deeply analysed. For these companies we hypothesize that credit costs should be higher compared to the average due to their specific risks (e.g. reputational and legal risks).

Duration: April 2012 - September 2013

Research Team:

  • Prof. Dr. Michael Schröder, ZEW – Leibniz Centre for European Economic Research, Department of International Finance and Financial Management
  • Dr. Andreas Hoepner, University of St. Andrews, School of Management, Centre for Responsible Banking & Finance, and United Nations, Principles for Responsible Investment
  • Dr. Ioannis Oikonomou, University of Reading, Henley Business School, ICMA Centre
  • Prof. Dr. L.J.R. Bert Scholtens, University of Groningen, Faculty of Economics and Business, Department of Economics, Econometrics and Finance