Does Corporate Social Responsibility Facilitate Public Debt Financing?

Abstract

This study investigates debt market benefit of socially responsible firms. We find that better CSR performance increases the share of public debt to total debt. Such effect is stronger for firms facing high agency and information costs, confirming that CSR drives debt structure by mitigating these frictions. The effect of CSR is weaker for firms in sinful industries or in low-trust regions where CSR is likely to be viewed as window dressing. Furthermore, utilizing BP oil spill event, we document that the effect of CSR becomes stronger after this event but only for non-sinful firms. This finding indicates that investors seem to value CSR more after a severe environmental disaster only for non-sinful firms, and they still perceive CSR as window dressing for sinful firms. Our evidence survives endogeneity checks and suggests that CSR facilitates firms’ access to public debt market especially when CSR is perceived as a genuine commitment.