Corporate social responsibility disclosure and debt financing

Abstract

Purpose The purpose of this paper is to examine how corporate social responsibility (CSR) reporting influences leverage ratios. In particular, this paper aims to determine whether firms with higher CSR disclosure scores have better access to debt financing. Design/methodology/approach This paper uses a panel data analysis of non-financial French firms listed on the Euronext Paris Stock Exchange and members of the SBF 120 index from 2010 to 2015. The environmental, social and governance (ESG) disclosure scores that are collected from the Bloomberg database are used as a proxy for the extent of ESG information disclosures by French companies. Findings The empirical results demonstrate that leverage ratios are positively related to CSR disclosure scores. In addition, the results show that the levels of long-term and short-term debt increase with the disclosure of ESG information, thus suggesting that CSR disclosures play a significant role in reducing information asymmetry and improving transparency around companies’ ESG activities. This finding meets the lenders’ expectations in terms of extrafinancial information and attracts debt financing sources. Research limitations/implications The research is based only on the quantity of the ESG information disclosed by French companies and does not account for the quality of the CSR disclosures. The empirical model omits some control variables (e.g. the nature of the industry, the external business conditions and the age of the firm). The results should not be generalized, since the sample was based on large French companies for 2010–2015. Practical implications France is a highly regulated context that places considerable pressure on French firms in terms of CSR policies. The French Parliament has adopted several laws requiring transparency in the environmental, social, and corporate governance policies of French firms. In this context, firms often regard CSR policies as constraints rather than opportunities. This study highlights the benefits that result from transparent CSR practices. More precisely, it provides evidence that the high disclosure of ESG information is a pull factor for credit providers. Originality/value This study extends the scope of previous studies by examining the value and relevance of CSR disclosures in financing decisions. More precisely, it focuses on the relatively little explored relationship between the extent of CSR disclosures and access to debt financing. This paper demonstrates how each category of CSR disclosure information (e.g. social, environmental and governance) affects access to debt financing. Moreover, this study focuses on the rather interesting empirical setting of France, which is characterized by its highly developed legal reforms in terms of CSR. Achieving a better understanding of the effects of ESG information is useful for corporate managers desiring to meet lenders’ expectations and attract debt financing sources.

Composition of Commissioners and Directors, Profitability, Capital Structure and Investor Investment Decisions: Role of Sustainable Investment

“…The capital structure also influences the company in carrying out environmental risk management [19].Capital structure with a lower proportion of internal equity than external prioritizes the application of ESG. This is caused by the external investors who are more interested in making sustainable investments.…”

“…They tend to think of it as greenwash, so it is a risk [17]. However, [19] found that funding agencies favor companies that report ESG activities because they are believed to reduce information asymmetry and increase transparency.…”

Corporate Social Responsibility and Financial Performance: A Quantile Regression Approach

“…The studies exploring the possible links between CSR disclosure and key financial decisions or parameters have substantially increased in the last decade. Recent study works which included investment or future cash flows [34], systematic risk [35], the cost of debt/bank loans [34,[36][37][38] and so on. Cheung [39] examined the indirect relationship between CSR and firm cash flows depends on the market value perspective.…”

Accounting for economic sustainability: environmental, social and governance perspectives

“…In the same context, yet from an external perspective to the organization, Hamrouni et al (2019) evaluates the effect that ESG information in the CSR reports has on the access to debt financing (leverage-ratios). From an investor's perspective, prior literature already highlights the strong correlation between good CSR reporting and performance (Dhaliwal et al, 2011) and significant voices have shown the link of CSR reporting to an enhanced stakeholder engagement as well as reduced opportunistic behavior (e.g.…”