Corporate social responsibility and credit risk

: empirical evidence from the United States

Abstract

In the past few years, Corporate Social Responsibility (CSR) has become the central pillar of business strategy for companies as it has attracted the interest of stakeholders. This empirical study examines the relationship between CSR performance and credit risk using corporate credit ratings and Ohlson (1980)’s bankruptcy prediction model as a measure. The focus is to analyze whether companies with superior ESG scores enhance their risk profile and mitigate risk. Using a sample of 429 US companies from 2006 to 2016, companies with good CSR performance can decrease their cost of debt by being awarded better credit ratings. Credit rating agencies factor in the ESG component in credit ratings, especially when the company is a high quality borrower. In addition, the environmental and corporate governance pillars are the most significant factors. However, I do not find strong evidence to support the hypothesis that superior CSR performance decreases the probability of default, except for large companies and firms operating in the services industry.

Date of Award	26 Jun 2023
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Zoe Venter (Supervisor)