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Do CSR Ratings Affect Loan Spreads? Evidence from European Syndicated Loan Market

Author

Listed:
  • Danilo Drago

    (Department of Business Administration and Law, University of Calabria, 87036 Rende, Italy)

  • Concetta Carnevale

    (Department of Culture, Education and Society, University of Calabria, 87036 Rende, Italy)

Abstract
We investigate whether corporate social responsibility (CSR) ratings affect the syndicated loan spreads paid by European listed firms. By performing ordinary least squares (OLS) pooled regressions on a sample of 1101 syndicated loans granted to European companies, we find evidence that borrowers’ CSR ratings have a significant impact on loan spreads. However, the relationship between CSR ratings and loan spreads is quite complex. Low CSR-rated firms pay higher loan spreads than better CSR-rated firms, but high CSR ratings are not always rewarded by lenders. The benefits of a high CSR rating level are significant only for firms located in countries that pay great attention to sustainability issues. Overall, our work provides a key to reconciling the mixed results obtained in the empirical literature, as we find evidence of a significant lack of homogeneity within the European Union countries regarding the relationship between CSR performance and the cost of debt financing.

Suggested Citation

  • Danilo Drago & Concetta Carnevale, 2020. "Do CSR Ratings Affect Loan Spreads? Evidence from European Syndicated Loan Market," Sustainability, MDPI, vol. 12(18), pages 1-30, September.
    • Handle: RePEc:gam:jsusta:v:12:y:2020:i:18:p:7639-:d:414331
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    References listed on IDEAS

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    Cited by:

    1. Mingyuan Guo & Chendi Zheng & Junyao Li, 2024. "Corporate social responsibility and debt financing cost: evidence from China," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 26(7), pages 17475-17503, July.
    2. Carnevale, Concetta & Drago, Danilo, 2024. "Do banks price ESG risks? A critical review of empirical research," Research in International Business and Finance, Elsevier, vol. 69(C).
    3. Karen Gloria Vargas‐Santander & Susana Álvarez‐Diez & Samuel Baixauli‐Soler & María Belda‐Ruiz, 2023. "Corporate social responsibility and financial performance: Does country sustainability matter?," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(6), pages 3075-3094, November.

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