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

Hami Amiraslani (), Karl V. Lins (), Henri Servaes and Ane Tamayo ()
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Hami Amiraslani: INSEAD
Karl V. Lins: University of Utah
Ane Tamayo: London School of Economics and CEPR

Review of Accounting Studies, 2023, vol. 28, issue 2, No 2, 462 pages

Abstract: 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 costs of debt; Financial crisis (search for similar items in EconPapers)
JEL-codes: G12 G21 G32 M14 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (6)

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DOI: 10.1007/s11142-021-09646-0

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