Assessment of the impact of corporate social responsibility on the cost of debt of Scandinavian public companies

Abstract

Scandinavia is recognised as a global leader in corporate social responsibility (CSR) and sustainability. Morsing and Strand (2013) pointed out that there exists an important research agenda to be further explored: what is Scandinavia doing about CSR and what is CSR doing for Scandinavia? There are many findings around the world on the relationship between CSR and various financial indicators. However, the impact of CSR on the cost of debt capital in Scandinavian public companies is still underexplored. Regression analysis, Fisher, VIF, and Bonferroni tests were applied in the research. Social responsibility scores, cost of debt, and control variables were taken from the Bloomberg database. The data were processed with R programming language. The empirical findings revealed that the average ESG disclosure score of Scandinavian public companies is 43.0, Environment Pillar Score, Social Pillar Score, and Governance Pillar Score – 34.3, 34.5, and 58.1 accordingly (range is 0-100). Moreover, all these CSR scores were increasing over time with the exception of the Social Pillar Score which dropped significantly in 2020 when the COVID-19 pandemic started. The average cost of debt in the companies with CSR disclosure is approximately twice as low (4.69%) as in the companies without CSR disclosure (9.11%). In addition, the standard deviation of the cost of debt is significantly higher in companies without CSR disclosure. We found that ESG disclosure and all its pillar scores have a statistically significant impact on the cost of debt of Scandinavian public companies. The research results do not change with the time lag, i.e., the variables are not lagged, lagged one year or two years. The research revealed that socially responsible companies are more transparent, disclose more information, and reduce asymmetry which makes them more favorable to creditors. In addition, they also transfer part of their CSR obligations to creditors