Journal of Business Ethics

, Volume 143, Issue 1, pp 179–207 | Cite as

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

  • Xingqiang Du
  • Jianying Weng
  • Quan ZengEmail author
  • Yingying Chang
  • Hongmei Pei


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.


Corporate environmental performance The interest rate on debt Internal control Lenders Chinese private-owned firms 



We are especially grateful to Prof. Gary Monroe (the section editor) and one anonymous reviewer for their many insightful suggestions and constructive comments. We also appreciate valuable comments from Bin Lin, Wentao Feng, Wei Jian, Shaojuan Lai, Yongkui Zhang, and participants of our presentations at Xiamen University, and Shanghai University. Prof. Xingqiang Du acknowledges financial support from the National Natural Science Foundation of China (approval number: 71072053), the Key Project of Key Research Institute of Humanities and Social Science in Ministry of Education (approval number: 13JJD790027), the Specialized Research Fund for the Doctoral Program of Higher Education of China (approval number: 20120121110007), and Xiamen University’s Prosperity Plan Project of Philosophy and Social Sciences (the sub-project for Center for Accounting Studies and the sub-project for School of Management).


  1. Al-Tuwaijri, S. A., Christensen, T. E., & Hughes Ii, K. E. (2004). The relations among environmental disclosure, environmental performance, and economic performance: a simultaneous equations approach. Accounting, Organizations and Society, 29(5), 447–471.CrossRefGoogle Scholar
  2. Ambec, S., & Lanoie, P. (2008). Does it pay to be green? A systematic overview. Academy of Management Perspectives, 22(4), 45–62.CrossRefGoogle Scholar
  3. Anderson, R. C., Mansi, S. A., & Reeb, D. M. (2003). Founding family ownership and the agency cost of debt. Journal of Financial Economics, 68(2), 263–285.CrossRefGoogle Scholar
  4. Anderson, R. C., Mansi, S. A., & Reeb, D. M. (2004). Board characteristics, accounting report integrity, and the cost of debt. Journal of Accounting and Economics, 37(3), 315–342.CrossRefGoogle Scholar
  5. Barnea, A., & Rubin, A. (2010). Corporate social responsibility as a conflict between shareholders. Journal of Business Ethics, 97, 71–86.CrossRefGoogle Scholar
  6. Basmann, R. L. (1960). On finite sample distributions of generalized classical linear identifiability test statistics. Journal of the American Statistical Association, 55, 650–659.CrossRefGoogle Scholar
  7. Belsley, D. A. (1991). A guide to using the collinearity diagnostics. Computer Science in Economics and Management, 4(1), 33–50.Google Scholar
  8. Belsley, D. A., Kuh, E., & Welsch, R. E. (1980). Regression diagnostics: Identifying influential observations and sources of collinearity. New York: Wiley.CrossRefGoogle Scholar
  9. Cai, L., & He, C. (2013). Corporate environmental responsibility and equity prices. Journal of Business Ethics. doi: 10.1007/s10551-013-1935-4.Google Scholar
  10. CBRC. (2007). A suggestion on the implementation of environmental policies and regulations to prevent credit risks. Retrieved August 15, 2014, from
  11. Chen, Y. (2008). The driver of green innovation and green image—Green core competence. Journal of Business Ethics, 81, 531–543.CrossRefGoogle Scholar
  12. China Daily. (2013). For a better environment. Retrieved August 30, 2013, from
  13. Cho, C. H., & Patten, D. M. (2007). The role of environmental disclosures as tools of legitimacy: A research note. Accounting, Organizations and Society, 32(7–8), 639–647.CrossRefGoogle Scholar
  14. Cho, C. H., Patten, D. M., & Roberts, R. W. (2006). Corporate political strategy: An examination of the relation between political expenditures, environmental performance, and environmental disclosure. Journal of Business Ethics, 67(2), 139–154.CrossRefGoogle Scholar
  15. Clarkson, P. M., Fang, X., Li, Y., & Richardson, G. (2013). The relevance of environmental disclosures: Are such disclosures incrementally informative? Journal of Accounting and Public Policy, 32, 410–431.CrossRefGoogle Scholar
  16. Clarkson, P. M., Li, Y., Richardson, G. D., & Vasvari, F. P. (2008). Revisiting the relation between environmental performance and environmental disclosure: An empirical analysis. Accounting, Organizations and Society, 33(4), 303–327.CrossRefGoogle Scholar
  17. Clarkson, P. M., Li, Y., Richardson, G. D., & Vasvari, F. P. (2011). Does it really pay to be green? Determinants and consequences of proactive environmental strategies. Journal of Accounting and Public Policy, 30, 122–144.CrossRefGoogle Scholar
  18. Cochran, P. L., & Wood, R. A. (1984). Corporate social responsibility and financial performance. Academy of Management Journal, 27(1), 42–56.CrossRefGoogle Scholar
  19. Cornell, B., & Shapiro, A. C. (1987). Corporate stakeholders and corporate finance. Financial Management, 16(1), 5–14.CrossRefGoogle Scholar
  20. Costello, A. M., & Wittenberg-Moerman, R. (2011). The impact of financial reporting quality on debt contracting: evidence from internal control weakness reports. Journal of Accounting Research, 49(1), 97–136.CrossRefGoogle Scholar
  21. Daines, R. M., Gow, I. D., & Larcker, D. F. (2010). Rating the ratings: How good are commercial governance ratings? Journal of Financial Economics, 98(3), 439–461.CrossRefGoogle Scholar
  22. Deegan, C., & Gordon, B. (1996). A study of the environmental disclosure practices of Australian corporations. Accounting and Business Research, 26(3), 187–199.CrossRefGoogle Scholar
  23. Deng, X., Kang, J., & Low, B. S. (2013). Corporate social responsibility and stakeholder value maximization: Evidence from mergers. Journal of Financial Economics, 110, 87–109.CrossRefGoogle Scholar
  24. DeYoung, R., Glennon, D., & Nigro, P. (2008). Borrower–lender distance, credit scoring, and loan performance: Evidence from informational-opaque small business borrowers. Journal of Financial Intermediation, 17, 113–143.CrossRefGoogle Scholar
  25. Dhaliwal, D., Hogan, C., Trezevant, R., & Wilkins, M. (2011). Internal control disclosures, monitoring, and the cost of debt. The Accounting Review, 86(4), 1131–1156.CrossRefGoogle Scholar
  26. Dhaliwal, D., Li, O. Z., Tsang, A., & Yang, Y. G. (2014). Corporate social responsibility disclosure and the cost of equity capital: The roles of stakeholder orientation and financial transparency. Journal of Accounting and Public Policy. doi: 10.1016/j.jaccpubpol.2014.04.006.Google Scholar
  27. Dixon-Fowler, H. R., Slater, D. J., Johnson, J. L., Ellstrand, A. E., & Romi, A. M. (2013). Beyond “does it pay to be green?” A meta-analysis of moderators of the CEP–CFP relationship. Journal of Business Ethics, 112(2), 353–366.CrossRefGoogle Scholar
  28. Dooley, R. S., & Fryxell, G. E. (1999). Are conglomerates less environmentally responsible? An empirical examination of diversification strategy and subsidiary pollution in the U.S. chemical industry. Journal of Business Ethics, 21(1), 1–14.CrossRefGoogle Scholar
  29. Doyle, J. T., Ge, W., & McVay, S. (2007). Accruals quality and internal control over financial reporting. The Accounting Review, 82(5), 1141–1170.CrossRefGoogle Scholar
  30. Du, X. (2014a). Is corporate philanthropy used as environmental misconduct dressing? Evidence from Chinese family-owned firms. Journal of Business Ethics. doi: 10.1007/s10551-014-2163-2.Google Scholar
  31. Du, X. (2014b). How the market values greenwashing? Evidence from China. Journal of Business Ethics. doi: 10.1007/s10551-014-2122-y.Google Scholar
  32. Du, X., Jian, W., Zeng, Q., & Du, Y. (2014). Corporate environmental responsibility in polluting industries: Does religion matter? Journal of Business Ethics, 124(3), 485–507.CrossRefGoogle Scholar
  33. Economy, E. C. (2007). The great leap backward? The costs of China’s environmental crisis. Foreign Affairs, 86(5), 38–59.Google Scholar
  34. El Ghoul, S., Guedhami, O., Kwok, C. C. Y., & Mishra, D. R. (2011). Does corporate social responsibility affect the cost of capital? Journal of Banking & Finance, 35, 2388–2406.CrossRefGoogle Scholar
  35. Fan, G., Wang, X. L., & Zhu, H. P. (2011). NERI index of Marketization of China’s provinces 2011 report. Beijing: Economics Science (in Chinese).Google Scholar
  36. Fisher-Vanden, K., & Thorburn, K. S. (2011). Voluntary corporate environmental initiatives and shareholder wealth. Journal of Environmental Economics and Management, 62(3), 430–445.CrossRefGoogle Scholar
  37. Flammer, C. (2013). Corporate social responsibility and shareholder reaction: The environmental awareness of investors. Academy of Management Journal, 56(3), 758–781.CrossRefGoogle Scholar
  38. Francis, J. R., Khurana, I. K., & Pereira, R. (2005a). Disclosure incentives and effects on cost of capital around the world. The Accounting Review, 80(4), 1125–1162.CrossRefGoogle Scholar
  39. Francis, J., LaFond, R., Olsson, P., & Schipper, K. (2005b). The market pricing of accruals quality. Journal of Accounting and Economics, 39(2), 295–327.CrossRefGoogle Scholar
  40. Garriga, E., & Melé, D. (2004). Corporate social responsibility theories: mapping the territory. Journal of Business Ethics, 53(1–2), 51–71.CrossRefGoogle Scholar
  41. Godfrey, P. C. (2005). The relationship between corporate philanthropy and shareholder wealth: A risk management perspective. Academy of Management Review, 30(4), 777–798.CrossRefGoogle Scholar
  42. Gonzalez, L., & Komarova-Loureiro, Y. (2014). When can a photo increase credit? The impact of lender and borrower profiles on online peer-to-peer loans. Journal of Behavioral and Experimental Finance, 2, 44–58.CrossRefGoogle Scholar
  43. Goss, A., & Roberts, G. S. (2011). The impact of corporate social responsibility on the cost of bank loans. Journal of Banking & Finance, 35, 1794–1810.CrossRefGoogle Scholar
  44. Gray, R., Kouhy, R., & Lavers, S. (1995). Corporate social and environmental reporting: A review of the literature and a longitudinal study of UK disclosure. Accounting Auditing and Accountability Journal, 8(2), 47–77.CrossRefGoogle Scholar
  45. Greene, W. H. (1990). Econometric analysis. New York: Macmillan.Google Scholar
  46. GRI. (2006). Sustainability reporting guidelines version 3.0. Retrieved September 11, 2014, from
  47. Guthrie, J., & Parker, L. (1989). Corporate social reporting: A rebuttal of legitimacy theory. Accounting and Business Research, 19(76), 343–352.CrossRefGoogle Scholar
  48. Hamilton, J. T. (1995). Pollution as news: media and stock market reactions to the toxic release inventory data. Journal of Environmental Economics and Management, 28, 98–113.CrossRefGoogle Scholar
  49. Henriques, I., & Sadorsky, P. (1996). The determinants of an environmentally responsive firm: An empirical approach. Journal of Environmental Economics and Management, 30(3), 381–395.CrossRefGoogle Scholar
  50. Ilinitch, A. Y., Soderstrom, N. S., & Thomas, T. E. (1998). Measuring corporate environmental performance. Journal of Accounting and Public Policy, 17(4–5), 383–408.CrossRefGoogle Scholar
  51. Ingram, R., & Frazier, K. B. (1980). Environmental performance and corporate disclosure. Journal of Accounting Research, 18, 612–622.CrossRefGoogle Scholar
  52. Keim, G. D. (1978). Corporate social responsibility: An assessment of the enlightened self-interest model. Academy of Management Review, 3(1), 32–39.Google Scholar
  53. Kim, J. B., Simunic, D. A., Stein, M. T., & Yi, C. H. (2011a). Voluntary audits and the cost of debt capital for privately held firms: Korean evidence. Contemporary Accounting Research, 28(2), 585–615.CrossRefGoogle Scholar
  54. Kim, J. B., Song, B. Y., & Zhang, L. (2011b). Internal control weakness and bank loan contracting: Evidence from SOX section 404 disclosures. The Accounting Review, 86(4), 1157–1188.CrossRefGoogle Scholar
  55. Kim, Y., Park, M., & Wier, B. (2012). Is earnings quality associated with corporate social responsibility? The Accounting Review, 87(3), 761–796.CrossRefGoogle Scholar
  56. Kim, Y., Li, H., & Li, S. (2014a). Corporate social responsibility and stock price crash risk. Journal of Banking & Finance, 43, 1–13.CrossRefGoogle Scholar
  57. Kim, M., Surroca, J., & Tribó, J. A. (2014b). Impact of ethical behavior on syndicated loan rates. Journal of Banking & Finance, 38, 122–144.CrossRefGoogle Scholar
  58. King, A. A., & Lenox, M. J. (2008). Does it really pay to be green? An empirical study of firm environmental and financial performance. Journal of Industrial Ecology, 5(1), 105–116.CrossRefGoogle Scholar
  59. Laszlo, C. (2003). The sustainable company: How to create lasting value through social and environmental performance. Washington, DC: Island.Google Scholar
  60. McGuire, J. B., Sundgren, A., & Schneeweis, T. (1988). Corporate social responsibility and firm financial performance. Academy of Management Journal, 31(4), 854–872.CrossRefGoogle Scholar
  61. Milani, C. (2014). Borrower–lender distance and loan default rates: Macro evidence from the Italian local markets. Journal of Economics and Business, 71, 1–21.CrossRefGoogle Scholar
  62. Miles, M. P., & Covin, J. G. (2000). Environmental marketing: A source of reputational, competitive, and financial advantage. Journal of Business Ethics, 23, 299–311.CrossRefGoogle Scholar
  63. Moulton, L. (2007). Divining value with relational proxies: How moneylenders balance risk and trust in the quest for good borrowers. Sociological Forum, 22(3), 300–330.CrossRefGoogle Scholar
  64. Nandy, M., & Lodh, S. (2012). Do bankers value the eco-friendliness of firms in their corporate lending decision? Some empirical evidence. International Review of Financial Analysis, 25, 83–93.CrossRefGoogle Scholar
  65. Patten, D. M. (1992). Intra-industry environmental disclosures in response to the Alaskan oil spill. Accounting, Organizations and Society, 17(5), 471–475.CrossRefGoogle Scholar
  66. People’s Daily. (2007). “Green credit policy” in ICBC: No credit loan if not reach the environmental criterion. Retrieved June 8, 2014, from
  67. Petersen, M. A. (2009). Estimating standard errors in finance panel data sets: Comparing approaches. Review of Financial Studies, 22(1), 435–480.CrossRefGoogle Scholar
  68. Pittman, J. A., & Fortin, S. (2004). Auditor choice and the cost of debt capital for newly public firms. Journal of Accounting and Economics, 37(1), 113–136.CrossRefGoogle Scholar
  69. Porter, M., & van der Linde, C. (1995). Green and competitive: ending the stalemate. Harvard Business Review, 73, 120–134.Google Scholar
  70. Qi, Y., Roth, L., & Wald, J. K. (2010). Political rights and the cost of debt. Journal of Financial Economics, 95(2), 202–226.CrossRefGoogle Scholar
  71. Qian, J., & Strahan, P. E. (2007). How laws and institutions shape financial contracts: The case of bank loans. Journal of Finance, 62(6), 2803–2834.CrossRefGoogle Scholar
  72. Rahman, N., & Post, C. (2012). Measurement issues in environmental corporate social responsibility (ECSR): Toward a transparent, reliable, and construct valid instrument. Journal of Business Ethics, 105(3), 307–319.CrossRefGoogle Scholar
  73. Richardson, A. J., & Welker, M. (2001). Social disclosure, financial disclosure and the cost of equity capital. Accounting, Organizations and Society, 26(7–8), 597–616.CrossRefGoogle Scholar
  74. Roberts, S. (2003). Supply chain specific? Understanding the patchy success of ethical sourcing initiatives. Journal of Business Ethics, 44(2–3), 159–170.CrossRefGoogle Scholar
  75. Russo, M. V., & Fouts, P. A. (1997). A resource-based perspective on corporate environmental performance and profitability. Academy of Management Journal, 40(3), 534–559.CrossRefGoogle Scholar
  76. Sargan, J. D. (1958). The estimation of economic relationships using instrumental variables. Econometrica, 26, 393–415.CrossRefGoogle Scholar
  77. Sarmento, M., Durão, D., & Duarte, M. (2005). Study of environmental sustainability: The case of Portuguese polluting industries. Energy, 30, 1247–1257.CrossRefGoogle Scholar
  78. Sengupta, P. (1998). Corporate disclosure quality and the cost of debt. The Accounting Review, 73(4), 459–475.Google Scholar
  79. Sharfman, M. P., & Fernando, C. S. (2008). Environmental risk management and the cost of capital. Strategic Management Journal, 29(6), 569–592.CrossRefGoogle Scholar
  80. SHSE. (2008). Notice of supervising the listed firms in Shanghai stock exchange to disclose the annual report of year 2008. Retrieved July 15, 2014, from
  81. SINA. (2006). Notice of the administrative measures for the determination of resources comprehensive utilization encouraged by the state. Retrieved June 8, 2014, from
  82. Spicer, B. H. (1978). Investors, corporate social performance and information disclosure: An empirical study. The Accounting Review, 54(1), 94–111.Google Scholar
  83. Sun, W., & Cui, K. (2014). Linking corporate social responsibility to firm default risk. European Management Journal, 32, 275–287.CrossRefGoogle Scholar
  84. SZSE. (2008). Notice of supervising the listed firms in Shenzhen stock exchange to disclose the annual report of year 2008. Retrieved July 21, 2014, from
  85. The World Bank. (2007). Cost of Pollution in China: Economic Estimates of Physical Damages. Retrieved September 11, 2014, from
  86. Tian, L., & Estrin, S. (2007). Debt financing, soft budget constraints, and government ownership evidence from China. Economics of Transition, 15(3), 461–481.CrossRefGoogle Scholar
  87. Verwijmeren, P., & Derwall, J. (2010). Employee well-being, firm leverage, and bankruptcy risk. Journal of Banking & Finance, 34, 956–964.CrossRefGoogle Scholar
  88. Walker, K., & Wan, F. (2012). The harm of symbolic actions and green-washing: Corporate actions and communications on environmental performance and their financial implications. Journal of Business Ethics, 109(2), 227–242.CrossRefGoogle Scholar
  89. Wang, Q., & Chen, Y. (2010). Energy saving and emission reduction revolutionizing China’s environmental protection. Renewable and Sustainable Energy Reviews, 14, 535–539.CrossRefGoogle Scholar
  90. Wooldridge, J. M. (1995). Score diagnostics for linear models estimated by two stage least squares. In G. S. Maddala, P. C. B. Phillips, & T. N. Srinivasan (Eds.), Advances in econometrics and quantitative economics: essays in honor of Professor C (pp. 66–87). Blackwell, Oxford: R. Rao.Google Scholar
  91. Ye, K., & Zhang, R. (2011). Do lenders value corporate social responsibility? Evidence from China. Journal of Business Ethics, 104, 197–206.CrossRefGoogle Scholar
  92. Zeghal, D., & Ahmed, S. (1990). Comparison of social responsibility information disclosure media by Canadian firms. Accounting, Auditing, and Accountability Journal, 3(1), 38–53.CrossRefGoogle Scholar
  93. Zhang, K., & Wen, Z. (2008). Review and challenges of policies of environmental protection and sustainable development in China. Journal of Environmental Management, 88(4), 1249–1261.CrossRefGoogle Scholar
  94. Zyglidopoulos, S. C., Georgiadis, A. P., Carroll, C. E., & Siegel, D. S. (2012). Does media attention drive corporate social responsibility? Journal of Business Research, 65, 1622–1627.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media Dordrecht 2015

Authors and Affiliations

  • Xingqiang Du
    • 1
  • Jianying Weng
    • 2
  • Quan Zeng
    • 3
  • Yingying Chang
    • 4
  • Hongmei Pei
    • 4
  1. 1.Accounting Department, School of ManagementXiamen UniversityXiamenChina
  2. 2.Department of Business AdministrationXiamen Ocean Vocational CollegeXiamenChina
  3. 3.School of ManagementXiamen UniversityXiamenChina
  4. 4.Accounting DepartmentXiamen UniversityXiamenChina

Personalised recommendations