Does Regional Favoritism Affect the Relationship between CSR Performance and the Ability to Obtain Bank Loans?

Cai, H.; Tan, Chao; Hong, Won‐Hwa; Zhong, Taiyang

doi:10.1080/1540496x.2019.1567265

Cited by 14 publications

(16 citation statements)

References 44 publications

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“…Quantile regression seeks to address the shortfall from the use of a conditional mean across different studies (Bae et al , 2018; La Rosa et al , 2018; Cai et al , 2019; Tan et al , 2020). H2a states that the level of CSR expenditure has a positive sign and larger magnitude access to debt financing (natural logarithm of long-term debt) of listed firms.…”

Section: Empirical Results and Discussionmentioning

confidence: 99%

“…The argument that CSR plays a vital role in debt and loans (Carroll, 1979; Spector, 2008) is argued and supported by empirical studies. For example, Cai et al (2019) examined the relationship between success in CSR and the ability to receive bank loans in China over the 2010–2015 period. The results showed that businesses with higher CSR performance have a positive correlation with the firm's ability to access more bank loans with longer maturities (Schröder, 2014).…”

Section: Theory Literature Review and Hypotheses Developmentmentioning

confidence: 99%

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Corporate social responsibility and debt financing of listed firms: a quantile regression approach

Oware

Mallikarjunappa

2021

JFRA

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Purpose The purpose of the study is to examine the effect of corporate social responsibility (CSR) on debt financing (natural logarithm of debt and leverage ratios) of listed firms. Design/methodology/approach Using content analysis for data extraction, the study examines listed firms on the Bombay Stock Exchange (BSE) from 2010 to 2019 financial year. It uses a quantile regression and panel fixed effect regression as the model's application. Findings The study shows that CSR expenditure has a positive and strong correlation with debt financing (i.e. natural logarithm of long-term and short-term debts). The first findings show that CSR expenditure has a negative and statistically significant association with total leverage ratio, using conditional mean and median percentile. However, there is a positive and statistically significant association between CSR expenditure and long-term leverage ratio at the 25th and 50th percentile. The second findings show that CSR expenditure has a positive and statistically significant association with long-term debt but an insignificant association with short-term debt and total debt under a conditional mean average. The application of quantile regression addresses the values that fall outside the confidence interval and therefore document a positive and statistically significant association between CSR expenditure and debt financing (short-term debt, long-term debt and total debt) at the 25th, 50th and 75th percentile. Originality/value The introduction of quantile regression gives a novelty in CSR and debt financing study, which to the best of the authors’ knowledge, has not received any attention. Similarly, firms have better information on how to position their CSR expenditure to attract providers of debt financing.

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Section: Empirical Results and Discussionmentioning

confidence: 99%

Section: Theory Literature Review and Hypotheses Developmentmentioning

confidence: 99%

Corporate social responsibility and debt financing of listed firms: a quantile regression approach

Oware

Mallikarjunappa

2021

JFRA

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“…In terms of debt financing, mandatory CSR disclosures have been shown to be associated with lower cost of debt financing (Hamrouni et al, 2019;Xu et al, 2021). Firms with higher CSR performance ratings have easier access to bank capital with longer loan maturities (Cai et al, 2019). CSR ratings have also been shown to be significantly associated with loan spreads, that is, companies with higher CSR rating received better loan rates (Bacha et al, 2020;Drago and Carnevale, 2020).…”

Section: Csrmentioning

confidence: 99%

“…, 2021). Firms with higher CSR performance ratings have easier access to bank capital with longer loan maturities (Cai et al. , 2019).…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

The impact of entrepreneurial firm social purpose on bank loan officer decisions: a study of loan covenant violations

Austin

Weinberger

Mohundro

2022

JSBED

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PurposeLoan officer decisions are of particular importance to entrepreneurial firms which rely heavily on debt financing as a primary source of capital. The authors investigate whether social purpose in these firms impact loan officer response to the violation of a debt covenant and whether there is a differential response in decision making between loan officers that work at local banks and those that work at national banks.Design/methodology/approachIn total 332 loan officers from cities in the South and Midwest United States participated in a quasi-experiment comparing entrepreneurial firms that violated their debt covenants. The loan officers were asked to evaluate loan materials and decide whether they would enforce loan covenant provisions of renegotiated interest rate and by what magnitude. In the treatment group, the loan officer evaluated loan materials of an entrepreneurial firm that included information related to the firms social purpose within their community. In the control group, the evaluation materials did not include this information.FindingsConsistent with social capital theory, the results suggest that loan officers view community involvement as beneficial to entrepreneurial firm value. Loan officers were less likely to increase interest rates among firms that demonstrated social purpose. Loan officers that decided to increase interest rates punished socially purposeful firms less severely than non-socially purposeful firms. Additionally, loan officers at community banks were less likely to increase interest rates than those at national banks.Originality/valueWhile the prior literature examines loan covenant violations, the authors focus on the impact of loan officer decision making in entrepreneurial firms specifically around covenant enforcement. Loan officer decisions have important implications for debt financing but are typically not observable to researchers. Prior work examining the relationship between social purpose and debt financing focuses on large public firms. This study recognizes that social purpose in entrepreneurial firms is less formalized and explicit and thus should be studied separately from large firms.

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“…, 2019; Xu et al. , 2020), which communicates to investors in decision-making actions in loan acquisition or debt financing (Cai et al. , 2019; Xu et al.…”

Section: Literature Reviewmentioning

confidence: 99%

CSR disclosure and debt financing in India: does CEO tenure matter?

Oware

Appiah

Worae

2022

JAAR

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PurposeThe study aims to examine whether corporate social responsibility (CSR) disclosure does improve debt financing of listed firms with sustainable development agendas coupled with high chief executive officer (CEO) tenure in India.Design/methodology/approachEmploying panel regression based on fixed effect and instrumental variable regression with fixed effect assumptions, the study examined data from the Bombay stock exchange from the period 2010 to 2019.FindingsThe study demonstrates that the disclosure of current exchange capital and moral capital cannot cause a firm to access short-term and long-term debt financing. However, lag investment in moral capital causes a positive effect on short-term debt financing. The second findings show that CEO tenure has a positive and statistically significant association with short-term debt financing and an insignificant association with long-term debt financing. The third findings show that the interaction of current CSR disclosure (moral and exchange capital) and CEO tenure is insignificant in affecting short-term and long-term debt finance. However, the interaction of lag CSR disclosure (moral and exchange capital) and CEO tenure positively affect short-term debt financing. The study addresses any endogeneity concerns arising from the CSR disclosure-debt financing association.Research limitations/implicationsThis study uses a single country to examine the inter-relationship between CEO tenure and debt financing and CSR measured by moral capital and exchange capital, thereby limiting the study's results for generalisation.Practical implicationsThe observation is that moral capital investment and disclosure do not guarantee new entrants the chance to access debt financing, but subsequent and lag CSR disclosure ensures access.Originality/valueNo studies examine morality from CSR disclosure on debt financing. This study shows that decoupling CSR into exchange capital and moral capital in accessing debt financing presents new inputs for scholarly debate on CSR.

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Does Regional Favoritism Affect the Relationship between CSR Performance and the Ability to Obtain Bank Loans?

Cited by 14 publications

References 44 publications

Corporate social responsibility and debt financing of listed firms: a quantile regression approach

Corporate social responsibility and debt financing of listed firms: a quantile regression approach

The impact of entrepreneurial firm social purpose on bank loan officer decisions: a study of loan covenant violations

CSR disclosure and debt financing in India: does CEO tenure matter?

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