Do Lenders Applaud Corporate Environmental Performance? Evidence from Chinese Private-Owned Firms

Abstract

This study extends previous literature on the association between corporate social responsibility and corporate financial behavior by investigating the influence of corporate environmental performance on the cost of debt. Using a sample of Chinese private-owned firms, we document strong and consistent evidence to show that corporate environmental performance is significantly negatively associated with the interest rate on debt-the proxy for the cost of debt. The findings suggest that lenders applaud better environmental performance. Moreover, internal control attenuates the negative association between corporate environmental performance and the interest rate on debt, implying substitutive effects between corporate environmental performance and internal control on the reduction of interest rates on debt. The results are robust to various sensitivity tests and are still valid after controlling for the potential endogeneity between corporate environmental performance and the interest rate on debt.

Executives' excess compensation, legitimacy, and environmental information disclosure in Chinese heavily polluting companies: The moderating role of media pressure

“…Existing studies have employed a content analysis index to measure EID (Du, Weng, Zeng, Chang, & Pei, ). In China, EID guidelines have been issued by the government, such as The Guidelines for Environmental Information Disclosure of Listed Companies issued by Shanghai Stock Exchange in 2008 and The Guidelines for Environmental Information Disclosure of Listed Companies (Draft for Comments) issued by the Ministry of Ecology and Environment, formerly the Ministry of Environmental Protection of China, in 2010.…”

New Fixed Assets Investment Project Environmental Performance and Influencing Factors—An Empirical Analysis in China’s Optics Valley

“…Hypotheses 7 and 8 are related to many research results that indicated that corporate environmental performance management was influenced by the environmental behavior of the government environmental departments, investors, and the public [38,43,46,48]. In recent years, the government, society, and the public have demanded better environmental protection and have insisted that for any new fixed asset investment projects, enterprises must ensure environmental protection to stop the common enterprise free-riding behaviors.…”

The IPO corporate social responsibility information disclosure: Does the stock market care?

“…Du et al . () study the effect of CEP on the debt interest rate for private firms in China and demonstrate that there is a significant negative correlation between the two. This negative relation is weakened by the firms’ internal control information.…”