Do participants in the bond market care about corporate social responsibility? Evidence from China

Purpose - Using a sample of listed Chinese companies that issued bonds from 2010 to 2019, the authors empirically test the link between CSR and corporate bond pricing, and the mechanism and channels behind this link. Design/methodology/approach - This study systematically examines whether and how corporate social responsibility (CSR) affects the corporate bond market in China. Findings - Firms with better CSR have higher corporate bond credit ratings and lower corporate bond yield spreads. These associations remain stable in robustness checks, including checks that use regional typhoon disaster as an instrumental variable. The effects of CSR are more significant for firms with a worse information environment and for those operating in high-risk environments. Better CSR is associated with less earnings management, fewer financial restatements and less analyst forecast divergence. In addition, the effects of CSR are more pronounced after the 2013 market-oriented reform and when issuers are non-state-owned enterprises. Practical implications - Because market participants can incorporate firms' CSR into their decision-making, establishing an effective channel for communicating CSR between issuers and market participants will enhance the effects of CSR. Social implications - Researchers need to attend to the mechanisms behind the link between CSR and corporate bond pricing, and to the characteristics of strong environmental contingency in emerging markets, specifically the periods and scenarios in which the effects of CSR change. Originality/value - This study provides systemic evidence that CSR benefits corporate bond pricing through both informational and reputational channels and that the effects of CSR vary by time and firm. These findings enrich the literatures on both the economic consequences of CSR and the determinants of corporate bond pricing, and provide a plausible explanation for mixed findings on the effects of CSR in previous studies.