KLD 400 Index Inclusion and Corporate Bonds

This study examines the relationship between the cost of public bonds and corporate social responsibility. We use firms added to the KLD 400 Index, a stock index of corporate social responsibility, and find that these firms have a significantly higher yield spread following inclusion to the index. This relationship remains constant even after controlling for the joint determination of yield spread, covenant structure, and debt maturity. We conclude that after firms are recognized as leaders in corporate social responsibility, they pay a higher yield to issue public debt.