Trust, Social Capital, and the Bond Market Benefits of ESG Performance

Trust, Social Capital, and the Bond Market Benefits of ESG Performance

Hami Amiraslani, Karl Lins, Henri Servaes, Ane Tamayo

Series number :

Serial Number: 
535/2017

Date posted :

September 11 2017

Last revised :

April 20 2021
SSRN Share

Keywords

  • ESG • 
  • CSR • 
  • Sustainability • 
  • social capital • 
  • trust • 
  • corporate bonds • 
  • bond spreads • 
  • agency costs of debt • 
  • financial crisis

We investigate whether a firm’s social capital, and the trust that it engenders, are viewed favorably by bondholders. Using firms’ environmental and social (E&S) performance to proxy for social capital, we find no relation between social capital and bond spreads over the period 2006-2019.

However, during the 2008-2009 financial crisis, which represents a shock to trust and default risk, high-social-capital firms benefited from lower bond spreads. These effects are stronger for firms with higher expected agency costs of debt and firms whose E&S efforts are more salient. During the crisis, high-social-capital firms were also able to raise more debt, at lower spreads, and for longer maturities. We find no evidence that the governance element of ESG is related to bond spreads

Authors

Professor
Real name:
Karl Lins
University of Utah
Real name:
Ane Tamayo