Corporate Social Responsibility and Rule 144A Debt Offerings: Empirical Evidence

Abstract

Rule 144A allows a firm to issue securities without a public registration statement with the Securities and Exchange Commission, and only qualified institutional investors can purchase such securities. In this study, focusing on corporate bonds issued under Rule 144A, we empirically investigate the relationship between the corporate social responsibility (CSR) of issuing firms and the bond yield spread at issuance. We document a significant and positive relation between CSR concerns, whereas CSR strengths seem to play an insignificant role in determining bond yield spread. Our main findings are robust to the instrumental variable approach and simultaneous equation estimation to address the potential endogeneity issues. We further explore the time-series changes in issuing firms’ CSR profiles, and report that institutional investors demand a higher bond yield spread when issuing firms’ exposure to higher social, environmental, and stakeholder concerns. Our analyses reveal that the main sources of such risk exposure are stakeholder conflict and concerns from primary stakeholder groups.

Keywords

• private placement
• Rule 144A
• bond yield spread
• corporate social responsibility