Do Lenders Value Corporate Social Responsibility? Evidence from China

• Published in: Journal of business ethics Vol. 104; no. 2; pp. 197 - 206
• Main Authors: Ye, Kangtao, Zhang, Ran
• Format: Journal Article
• Language: English
• Published: Dordrecht Springer 01.12.2011; Springer Netherlands; Springer Nature B.V
• Series: Journal of Business Ethics
• Subjects: Business and Management; Business Ethics; Business risks; Business structures; Capital costs; China; China (People's Republic); Corporate debt; Corporate philanthropy; Corporate Social Responsibility; Cost; Cost of equity; Debt; Debt financing; Debt financing cost; Developing countries; Education; Emerging markets; Environmental risk; Equity capital; Ethics; Financial investments; Financial leverage; financing; Fremdkapital; Investments; Kapitalkosten; Least squares method; Literature reviews; Management; mitigation; Philanthropy; Philosophy; Professional ethics; Quality of Life Research; Risk management; Size; Social responsibility; Social responsibility of business; Stakeholders; China, People's Rep; Corporate social responsibility; Corporate philanthropy; Debt financing cost; Risk management; China; Size
• ISSN: 0167-4544; 1573-0697
• DOI: 10.1007/s10551-011-0898-6

Drawing on risk mitigation theory, this article examines whether the improvement of firms' social performance reduces debt financing costs (CDFs) in China, the world's largest emerging market. Employing both the ordinary least square (OLS) and the two-stage instrumental variable regression methods, we find that improved corporate social responsibility (CSR) reduces the CDF when firms' CSR investment is lower than an optimal level; however, this relationship is reversed after the CSR investment exceeds the optimal level. Firms with extremely low or extremely high CSR are subject to a higher CDF. The results also suggest that the optimal CSR level for small firms is higher than that for large firms. This study is the first to document a U-shaped relationship between CSR and CDF and also the first to investigate this relationship within an emerging market context.