A Matter of Trust? The Bond Market Benefits of Corporate Social Capital during the Financial Crisis'

Finance

Further details

'A Matter of Trust? The Bond Market Benefits of Corporate Social Capital during the Financial Crisis' written by Henri Servaes, Hami Amiraslani, Karl Lins and Ane Tamayo.

Abstract

We investigate whether a firm's social capital, and the trust that it engenders, are viewed favorably by bondholders when the markets and the economy at large face a severe crisis of confidence. Using the financial crisis as an exogenous shock to trust and firms' discretionary investments in corporate social responsibility (CSR) as a proxy for social capital, we show that high - CSR firms benefited from lower debt spreads in the secondary market during the financial crisisi compared to low-CSR firms. High-CSR firms were also more able to access the primary bond market during this period and those high-CSR firms that did gain access benefited from lower at-issue spreads, better initial credit ratings, and were able to issue bonds with longer maturities. Our results suggest that debt investors believe that high-CSR firms are less likely to engage in asset substitution that would be detrimental to stakeholders over than shareholders. Our findings also indicate that the reciprocity benefits of CSR that accrued to shareholders during the financial crisis carry across to another important asset class, debt capital.

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