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The impact of corporate social responsibility activities on corporate financing: a case of bank loan covenants

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  • Sung C. Bae
  • Kiyoung Chang
  • Ha-Chin Yi

Abstract

We examine the impact of corporate social responsibility (CSR) activities on the intensity of loan covenants, one of the most important nonpricing terms of syndicated loan contracts. Undocumented in the existing literature, we offer new evidence that while CSR strengths have little impact on loan covenants, CSR concerns lead to stricter loan covenants. These asymmetric results suggest that while lenders view CSR strengths as discretionary, they are more concerned about value-destroying CSR concerns, which induces the lenders to screen out firms engaging in nonsocially responsible activities and penalize these firms with stricter loan covenants. Combined with the evidence on the CSR-loan spread association in the existing literature, our results provide strong evidence that CSR matters to both pricing and nonpricing terms of loan contracts.

Suggested Citation

  • Sung C. Bae & Kiyoung Chang & Ha-Chin Yi, 2016. "The impact of corporate social responsibility activities on corporate financing: a case of bank loan covenants," Applied Economics Letters, Taylor & Francis Journals, vol. 23(17), pages 1234-1237, November.
    • Handle: RePEc:taf:apeclt:v:23:y:2016:i:17:p:1234-1237
    DOI: 10.1080/13504851.2016.1148247
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    Cited by:

    1. Sohail Ahmad Javeed & Boon Heng Teh & Tze San Ong & Lee Lee Chong & Mohd Fairuz Bin Abd Rahim & Rashid Latief, 2022. "How Does Green Innovation Strategy Influence Corporate Financing? Corporate Social Responsibility and Gender Diversity Play a Moderating Role," IJERPH, MDPI, vol. 19(14), pages 1-22, July.
    2. Leticia Inácio & Ivete Delai, 2022. "Sustainable banking: a systematic review of concepts and measurements," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 24(1), pages 1-39, January.
    3. Sung C. Bae & Kiyoung Chang & Ha-Chin Yi, 2018. "Corporate social responsibility, credit rating, and private debt contracting: new evidence from syndicated loan market," Review of Quantitative Finance and Accounting, Springer, vol. 50(1), pages 261-299, January.

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