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Are more corporate social investments better? Evidence of non-linearity effect on costs of U.S. Bank loans

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

Abstract

We explore a research issue of whether corporate social responsibility (CSR) activities have a monotonic relationship with the cost of bank debt. Employing extensive data of private syndicated loans issued by U.S. firms, we find that the benefit of CSR strengths is not monotonic but declines at a decreasing rate, relative to the loan spread of private bank loans. Our findings indicate that there is an optimal level of CSR engagement with respect to the cost of debt. Undocumented for U.S. firms in the CSR literature, our results offer new evidence on the non-linearity effect of CSR on debt financing costs and suggest that a borrower's CSR investments beyond an optimal level are viewed as ineffective and wasteful.

Suggested Citation

  • Bae, Sung C. & Chang, Kiyoung & Yi, Ha-Chin, 2018. "Are more corporate social investments better? Evidence of non-linearity effect on costs of U.S. Bank loans," Global Finance Journal, Elsevier, vol. 38(C), pages 82-96.
    • Handle: RePEc:eee:glofin:v:38:y:2018:i:c:p:82-96
    DOI: 10.1016/j.gfj.2018.03.002
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    Cited by:

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    7. Farah, Tazrina & Li, Jialong & Li, Zhicheng & Shamsuddin, Abul, 2021. "The non-linear effect of CSR on firms’ systematic risk: International evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 71(C).
    8. Danilo Drago & Concetta Carnevale, 2020. "Do CSR Ratings Affect Loan Spreads? Evidence from European Syndicated Loan Market," Sustainability, MDPI, vol. 12(18), pages 1-30, September.

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    More about this item

    Keywords

    Corporate social responsibility; Loan spread; Non-linearity effect; U.S. syndicated loans;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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