Corporate Social Responsibility

and
The Cost of Corporate Bonds
Wenxia Ge, Mingzhi Liu

Asper School of Business, University of Manitoba, 181 Freedman Crescent, Winnipeg, Manitoba R3T 5V4, Canada

Adam Leonard Saputra 1406576862

Fadilla Primaria Dewi 1406612256
Gita Swasti P. Ruum 1606953000
Yunindera Puspasari 1606953581
 Purpose of Presentation:
● Presenting the research process
● Identifying and defining problem statement
Fact Findings:
● 93% of 766 chief executive officers (CEOs) from all over the world believe that issues related to
CSR are critical to the future success of their businesses.- Lacy, P., Cooper, T., Hayward, R.,
Neuberger, L., 2010. A New Era of Sustainability. UN Global Compact—Accenture CEO Study.
● Social responsibility-related investment in the United States grew dramatiically from 1995 to 2010,
from $639 billion to $3.07 trillion. In 2010, social responsibility investment accounted for 12% of total
U.S. asset investment - Forum for Sustainable and Responsible Investment (formerly the
Social Investment Forum)
● Social responsibility will provide potential economic benefits to the firm due to a positive reputation
effect - Verschoor, C., 2005. Is there financial value in corporate values? Strategic Finance 87
(1), 17–18.
● Little evidence has been uncovered on how U.S. public bondholders value CSR performance.
 ● Examines the economic
consequences of CSR
performance on the cost of

Purpose of Journal
public debt financing.
● Investigate the association
between CSR performance
(strengths and concerns) and
the cost of new corporate bond
issues in the U.S. bond market.
Research Process
1. CSR data from the RiskMetrics Group KLD STATS database
2. Collect bond data from the Mergent Fixed Income Securities Database and
accounting data from Compustat.
3. Assign the value of one for each item related to CSR strength or concern and
then define each firm’s overall CSR performance score as the difference
between its total strength and total concern scores. A higher CSR
performance score indicates better CSR performance.
The Findings
1. Higher overall CSR performance score is associated with better credit
ratings.
2. Higher CSR strength score is significantly associated with better credit
ratings but the estimated coefficient of the CSR concern score is not
statistically significant. The CSR strength score is negatively associated with
bond yield spreads and the CSR concern score is positively associated with
bond yield spreads.
The Findings (cont.)
1. Focusing on firm performance in seven CSR dimensions, higher firm overall
performance scores in four CSR dimensions (i.e., community, product, employee
relations, and governance) are significantly associated with lower bond yield spreads.
Our results also show that the strength scores in three CSR dimensions—environment,
community, and governance—are significantly associated with lower bond yield
spreads, while the concern scores in three CSR dimensions, including product,
diversity, and employee relations, are significantly associated with higher bond yield
spreads.
2. Subsample analyses show that the association between CSR performance and the cost
of debt is more pronounced in investment-grade bonds and non-Rule 144a bonds, for
financially healthier bond issuers, for issuers with weaker corporate governance and
higher information asymmetry, and for issuers operating in environmentally sensitive
industries.
 1. Share-holders and debtholders
have different claims on a

Distinction from
firm’s net assets and thus tend
to have conflicting interests

recent research on
(Ahmed et al., 2002)
2. Corporate bond financing

CSR and the cost of

represents the major source of
external funding for U.S.

equity capital:
corporations (Denis and
Mihov, 2003)
Conclusion

1. CSR-related expenditure may be considered a poor use of share- holder

money but in the other hand, CSR activities can reduce environmental
violation and litigation risks and help build firm reputation.
2. Understanding the bond market consequences of CSR is important and
interesting in its own merit.
Contribution to The Literature
1. Providing initial evidence of how a firm’s overall CSR performance, the results
suggest that corporate commitment to CSR activities receives public
bondholder support in the United States.
2. Public debtholders and private lenders may value CSR activities differently.
3. CSR performance is also associated with the indirect cost of debt, that is,
bonds issued by firms with better CSR performance are subject to fewer
covenant restrictions
4. Information of corporate CSR performance is value relevant to the corporate
bond market and that bondhold- ers value good CSR performance positively.
Important Practical
Implications

Even though CSR activities
consume corporate resources, they
also bring benefits to corporations.
CSR investments are beneficial not
only to society, but also to the
corporations themselves because
they reduce the cost of equity and
debt capital.
THANK YOU