The Bond Market Benefits of Corporate Social Capital

Abstract

We investigate whether a firm’s social capital, and the trust that it engenders, are viewed favorably by bondholders. Using firms’ corporate social responsibility (CSR) activities to proxy for social capital, we find no relation between CSR and bond spreads over the period 2005-2013. However, during the 2008-2009 financial crisis, which represents a shock to trust and default risk, high-CSR firms benefited from lower bond spreads. These effects are stronger for firms with higher expected agency costs of debt. During the crisis, high-CSR firms were also able to raise more debt at lower spreads, better credit ratings, and longer maturities.