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Do Lenders Value Corporate Social Responsibility? Evidence from China

Kangtao Ye and Ran Zhang
Journal of Business Ethics
Vol. 104, No. 2 (December 2011), pp. 197-206
Published by: Springer
Stable URL: http://www.jstor.org/stable/41476079
Page Count: 10
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Do Lenders Value Corporate Social Responsibility? Evidence from China
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Abstract

Drawing on risk mitigation theory, this article examines whether the improvement of firms' social performance reduces debt financing costs (CDFs) in China, the world's largest emerging market. Employing both the ordinary least square (OLS) and the two-stage instrumental variable regression methods, we find that improved corporate social responsibility (CSR) reduces the CDF when firms' CSR investment is lower than an optimal level; however, this relationship is reversed after the CSR investment exceeds the optimal level. Firms with extremely low or extremely high CSR are subject to a higher CDF. The results also suggest that the optimal CSR level for small firms is higher than that for large firms. This study is the first to document a U-shaped relationship between CSR and CDF and also the first to investigate this relationship within an emerging market context.

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