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Impact of corporate social responsibility on cost of debt in Scandinavian public companies

Author

Listed:
  • Vilija Aleknevièiene

    (Vytautas Magnus University, Lithuania)

  • Sandra Stralkute

    (Vytautas Magnus University, Lithuania)

Abstract

Research background: In recent decades, companies have paid increasing attention to corporate social responsibility (CSR) and its related performance. Scandinavian countries lead the world in CSR and sustainability. The good CSR performance of Scandinavian companies has motivated studies on this phenomenon, particularly on the connection between a company’s CSR and its performance. One of the most important performance indicators and value drivers is the cost of debt. Purpose of the article: This study assessed the impact of CSR on the cost of debt in Scandinavian public companies. Methods: The research was divided into two stages. In the first stage, Scandinavian public companies were divided into two groups (with and without ESG (environmental, social, governance) disclosure scores) to reveal differences in the cost of debt. In the second stage, a fixed-effects regression model for balanced panel data sets was applied from 2011 to 2020 to assess the impact of ESG and its pillars on the cost of debt. Findings & value added: The results revealed that the cost of debt of companies in Scandinavian countries with ESG disclosure scores was significantly lower. The ESG disclosure scores of these companies have increased significantly over the past 10 years. We found a positive impact of CSR on the cost of debt in Scandinavian public companies. The increase in ESG disclosure and pillar scores reduced the cost of debt. These findings are valuable from a scientific perspective. Scandinavian public companies with ESG scores have higher financial risk, but lower cost of debt. These results support the importance of investors’ behavior, information asymmetry, and signaling. The findings have several implications for shareholders, managers and creditors. They suggest that creditors consider ESG disclosures when determining a borrower’s creditworthiness. Additionally, it is a message to regulators that the debt market values ESG disclosures.

Suggested Citation

  • Vilija Aleknevièiene & Sandra Stralkute, 2023. "Impact of corporate social responsibility on cost of debt in Scandinavian public companies," Oeconomia Copernicana, Institute of Economic Research, vol. 14(2), pages 585-608, June.
    • Handle: RePEc:pes:ieroec:v:14:y:2023:i:2:p:585-608
    DOI: 10.24136/oc.2023.016
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    References listed on IDEAS

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    More about this item

    Keywords

    corporate social responsibility; cost of debt; ESG disclosure score; ESG disclosure pillars;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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