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