The Effects of Corporate and Country Sustainability Characteristics on The Cost of Debt: An International Investigation

Hoepner, Andreas G. F.; Oikonomou, Ioannis; Scholtens, Bert; Schröder, Michael

doi:10.1111/jbfa.12183

Cited by 197 publications

(103 citation statements)

References 90 publications

(171 reference statements)

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“…Overall our results are consistent with the risk mitigation view, also supported by Stellner et al (2015) and, to a lesser extent, Hoepner et al (2016). Conversely, findings of Menz (2010) and Magnanelli and Izzo (2017) show that companies with better CSP face, respectively, higher spreads for their corporate bonds and higher cost of debt.…”

supporting

confidence: 90%

Do corporate social responsibility ratings affect credit default swap spreads?

Drago

Carnevale

Gallo

2018

Corp Soc Responsibility Env

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We examine the impact of a corporate social responsibility (CSR) rating announcement on the credit default swap (CDS) spreads of European firms. Our results indicate that a CSR rating upgrade leads to an immediate and significant decrease in CDS spreads of rated firms. In contrast, CSR rating downgrades do not have a significant immediate impact on the CDS market. Additionally, better CSR ratings, in terms of both the overall score and the scores for the three main CSR pillars (economic, environmental, and social), lead to lower CDS spreads. Therefore, we document that the CSR rating is a measure of CSR performance that affects market CDS prices. Our findings are consistent with the risk mitigation view, highlighting the benefits derived from CSR commitment. Consequently, CSR engagement can function as a tool for improving firm's creditworthiness. This result may provide an incentive to pay more attention to CSR in managerial, regulatory, and investment decisions.

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supporting

confidence: 90%

Do corporate social responsibility ratings affect credit default swap spreads?

Drago

Carnevale

Gallo

2018

Corp Soc Responsibility Env

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“…() show that the institutional framework of a country moderates the relation between CSR and firm value. Hoepner, Oikonomou, Scholtens, and Schröder (), looking into 470 loan agreements in 28 different countries, find that higher country sustainability is associated with lower costs of bank loans. And finally, Breuer, Rosenbach, and Salzmann () examine the effects of CSR on the cost of equity under different levels of investor protection.…”

Section: Previous Literature Theoretical Background and Main Hypothesesmentioning

confidence: 99%

Corporate social responsibility and firm financial risk reduction: On the moderating role of the legal environment

Benlemlih¹,

Girerd‐Potin

2017

Business Fin & Account

145

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Approaching the institutional environment through its regulative component, we distinguish between shareholder‐oriented and stakeholder‐oriented countries. Identifying first this classification with the distinction between common law versus civil law countries and using a large sample of 5,716 firm‐year observations that represents 1,169 individual firms in 25 countries between 2001 and 2011, we show that Corporate Social Responsibility (CSR) significantly reduces firms’ idiosyncratic risk in civil law countries but not in common law countries. Using then a more direct classification based on shareholder and employee protection scores, our findings suggest that CSR negatively affects firms’ idiosyncratic and systematic risks only in less shareholder‐oriented and more stakeholder‐oriented countries, respectively. These findings are similar in the different components of CSR with two notable exceptions: a high score in corporate governance reduces firm risk only in common law countries, and community involvement increases idiosyncratic risk in more shareholder‐oriented and less stakeholder‐oriented countries, respectively. Taken together, our results strongly support the view that the relationship between CSR and financial risk is moderated by the institutional context of the firm.

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“…Trust facilitates lasting commercial relations, especially if there is no tangible product (services) and no physical facilities (online transactions as opposed to face‐to‐face). In the bank‐customer relationship, the reputation generated by CS decreases information asymmetries in favour of customers since it improves transparency and reliability (Hoepner et al, ) and reduces the risk of opportunistic behaviour by the bank (Dyer, ).…”

Section: Corporate Sustainability In the Financial Industry: Reducingmentioning

confidence: 99%

“…Digital ubiquity may generate a problem of asymmetric information against banks (Granados and Gupta, ). Indications of opportunistic behaviour in the financial sector have led to an increased mistrust (Hoepner et al, ). In particular, the increased availability of data from clients generates fears of opportunistic threat and may cause reputational damage due to job displacements.…”

mentioning

confidence: 99%

The Impact of Corporate Sustainability and Digitalization on International Banks’ Performance

2020

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We analyse the implications for international banks of two contemporary megatrends: corporate sustainability (CS) and digitalization. The digital environment and the availability of massive data from customers generate asymmetric information for banks to the detriment of customers, who experience individual vulnerabilities such as privacy rights. This can hinder the positive influence of digitalization in banks' performance, with relevant managerial and political implications. In this context, the reputation generated by CS strategies can constitute a credence factor that reduces customers' fears of opportunistic behavior and information asymmetries. We test and find support for our hypothesis over a panel data of large international banks from developed countries. Our findings shed light on the mutual reinforcement of CS and digitalization strategies in enhancing banks' market performance and efficiency. Policy Implications• Our study shows that digitalization requires the complementary action of CS-based reputation to enhance banks' performance. This suggests the need for reputation building in those sectors (public and private) immersed in the digital transformation. By doing so, organizations can reduce information asymmetries for their main stakeholders. Since CS efforts exhibit an important potential for building organizational reputation, governments should stimulate the firms' CS investments.• Banks' survival against disruptive forces urges to reconsider the basis of its business model. It is not sufficient to react against digital-born companies' menace with M&A-driven strategies. For that reason, we suggest that including CS in the basis of the banking business model can contribute to achieving better market performance and efficiency and to overcoming fierce competition by new entrants.

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The Effects of Corporate and Country Sustainability Characteristics on The Cost of Debt: An International Investigation

Cited by 197 publications

References 90 publications

Do corporate social responsibility ratings affect credit default swap spreads?

Do corporate social responsibility ratings affect credit default swap spreads?

Corporate social responsibility and firm financial risk reduction: On the moderating role of the legal environment

The Impact of Corporate Sustainability and Digitalization on International Banks’ Performance

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