Trust, social capital, and the bond market benefits of ESG performance

Hami Amiraslani, Karl V. Lins, Henri Servaes and Ane Tamayo

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We investigate whether a firm’s social capital and the trust that it engenders are viewed favorably by bondholders. Using firms’ environmental and social (E&S) performance to proxy for social capital, we find no relation between social capital and bond spreads over the period 2006–2019. However, during the 2008–2009 financial crisis, which represents a shock to trust and default risk, high-social-capital firms benefited from lower bond spreads. These effects are stronger for firms with higher expected agency costs of debt and firms whose E&S efforts are more salient. During the crisis, high-social-capital firms were also able to raise more debt, at lower spreads, and for longer maturities. We find no evidence that the governance element of ESG is related to bond spreads. The gap between E&S performance of firms in the bottom and top E&S terciles has narrowed since the financial crisis, especially in the year prior to accessing the bond market.

Keywords: ESG; CSR; sustainability; social capital; trust; corporate bonds; bond spreads; agency cost of debt; financial crisis (search for similar items in EconPapers)
JEL-codes: G12 G21 G32 M14 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2022-04-14
New Economics Papers: this item is included in nep-cfn, nep-fmk and nep-soc
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Published in Review of Accounting Studies, 14, April, 2022, 28(2), pp. 421 - 462. ISSN: 1380-6653

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Journal Article: Trust, social capital, and the bond market benefits of ESG performance (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:112448

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