Hami Amiraslani, Karl V. Lins, Henri Servaes, Ane Tamayo
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. The gap between E&S performance of firms in the bottom and top E&S terciles has narrowed since the financial crisis, especially in the year prior to accessing the bond market. © 2022, The Author(s).
INSEAD, 1 Ayer Rajah Avenue, Singapore, 138676, Singapore; David Eccles School of Business, University of Utah, 1655 Campus Center Dr, Salt Lake City, 84112, UT, United States; London Business School, CEPR, and ECGI, Regent’s Park, London, NW1 4SA, United Kingdom; London School of Economics and CEPR, Houghton Street, London, WC2A 2AE, United Kingdom
