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Does Corporate Social Responsibility (CSR) Improve Credit Ratings? Evidence from Geographic Identification
Author(s) -
Jiraporn Pornsit,
Jiraporn Napatsorn,
Boeprasert Adisak,
Chang Kiyoung
Publication year - 2014
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/fima.12044
Subject(s) - corporate social responsibility , zip code , exploit , business , competition (biology) , identification (biology) , credit rating , code (set theory) , accounting , actuarial science , economics , demographic economics , public relations , ecology , botany , computer security , set (abstract data type) , political science , computer science , biology , programming language
We show that a firm's CSR policy is significantly influenced by the CSR policies of firms in the same three‐digit zip code, an effect possibly due to investor clienteles, local competition, and/or social interactions. We then exploit the variation in CSR across the zip codes to estimate the effect of CSR on credit ratings under the assumption that zip code assignments are exogenous. We find that more socially responsible firms enjoy more favorable credit ratings. In particular, an increase in CSR by one standard deviation improves the firm's credit rating by as much as 4.5%.