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Abstract
Drawing on risk mitigation theory, this article examines whether the improvement of firms’ social performance reduces debt
financing costs (CDFs) in China, the world’s largest emerging market. Employing both the ordinary least square (OLS) and the
two-stage instrumental variable regression methods, we find that improved corporate social responsibility (CSR) reduces the
CDF when firms’ CSR investment is lower than an optimal level; however, this relationship is reversed after the CSR investment
exceeds the optimal level. Firms with extremely low or extremely high CSR are subject to a higher CDF. The results also suggest
that the optimal CSR level for small firms is higher than that for large firms. This study is the first to document a U-shaped
relationship between CSR and CDF and also the first to investigate this relationship within an emerging market context.
- Content Type Journal Article
- Pages 1-10
- DOI 10.1007/s10551-011-0898-6
- Authors
- Kangtao Ye, Renmin University of China, Beijing, 100872 People’s Republic of China
- Ran Zhang, Guanghua School of Management, Peking University, Beijing, 100871 People’s Republic of China
- Journal Journal of Business Ethics
- Online ISSN 1573-0697
- Print ISSN 0167-4544