Are corporate social responsibility disclosures relevant for lenders? Empirical evidence from France

Abstract

Purpose The purpose of this paper is to test whether or not CSR disclosure (i.e. aggregate as well as its three sub-indicators) reduces the cost of debt for French corporations listed in the SBF 120 index between 2010 and 2015. Design/methodology/approach CSR disclosure ratings of firms were collected from the Bloomberg database under three dimensions such as environmental, social and governance (ESG). Then, a pooled regression analysis was run. Findings The results indicate that overall CSR disclosure score as a combination of ESG disclosure scores has a negative effect on the cost of debt (i.e. lowers the cost of debt). While environmental disclosure is negatively associated with the cost of debt, social disclosure is unexpectedly positively associated, and governance disclosure has an insignificant association with the cost of debt. Research limitations/implications The study has two main limitations. First, the analysis does not consider contractual constraints and obligations that might exist in debt contracts (Jung et al., 2018). Second, the analyses cover a specific time period (i.e. between 2010 and 2015) for a specific country (i.e. France) excluding utilities and the financial sector. Practical implications Overall, it is inferred from the results that financial markets for lenders take into account CSR disclosure when assessing the creditworthiness of borrowers. Specifically, environmental disclosure is the only subdimension of CSR that is influential on creditors’ decisions to offer favorable interest rates. In line with this outcome, companies can assess their processes and be more aligned with eco-friendly practices, and investors are particularly advised to invest in those types of firms. Originality/value This study extends scant literature on the association between CSR and the cost of debt by exploring how creditors treat CSR dimensions dissimilarly in granting loans to firms. The findings of this study have particular importance as financial debt is one of the most predominant forms of external financing.

Non‐financial disclosure and information asymmetry: A stakeholder view on US listed firms

“…Our study builds on and extends recent research on the performance consequences of non-financial disclosure by substantiating the extant understanding that the decisions on variety of and relative emphasis attributed to stakeholders in non-financial disclosure are as relevant as the volume of information disclosed in alleviating opacity (Al-Shaer, 2020;Hamrouni et al, 2019;Romero et al, 2019). The findings confirm the view that non-financial reports act as conduits of information that drives investors' reaction (Leuz & Verrecchia, 2000).…”

“…While financial information targets primarily the investor community and focuses on financial data, non‐financial disclosure targets a wider set of stakeholders and focuses on the actions undertaken by the firm in respect to multiple stakeholder categories (Du & Yu, 2020). In so doing, non‐financial disclosure enhances firm accountability about targets, achievements, and internal processes, increasing the level of transparency to external audiences (Hamrouni, Uyar, & Boussaada, 2019; Romero et al, 2019). It is for this reason that non‐financial disclosure is expected to facilitate the assessment of a firm's intangible value better than through traditional corporate reporting (Adams, 2004), providing external audiences with extra‐financial indicators to understand how firms create value (Aureli, Gigli, Medei, & Supino, 2020; Cuadrado‐Ballesteros, Garcia‐Sanchez, & Ferrero, 2016).…”

Extending the benefits of ESG disclosure: The effect on the cost of debt financing

“…and Hamrouni et al (2019) exhibiting that ESG disclosure negatively affects the cost of debt. In this sense, findings of this study extend this quite unexplored strand of literature showing the negative impact of ESG disclosure on the cost of debt on a sample of international companies operating in different sectors.…”

Does board gender diversity matter? Evidence from hostile takeover vulnerability

“…To construct our samples, we gather the data on directors from the ISS database (Institutional Shareholder Services, formerly Risk Metrics) and the data on firm characteristics from COMPUSTAT. In line with past studies (Chen et al, 2018;Riyadh et al, 2019;Hamrouni et al, 2020), firms from the financial industry (SIC codes 6000-6999) and the utility industry (SIC codes 4900-4999) are excluded from the sample as these industries are subject to special regulations which affect their financial characteristics. The data on the takeover index is provided by Cain et al (2017).…”