Goss, Allen and Gordon S. Roberts. "The Cost of Virtue: Corporate Social Responsibility and the Cost of Debt Financing." Working Paper, York University Schulich School of Business, 2007.

This study reviews the impact of corporate social responsibility (using a CSR score derived from KLD data) on the cost of debt capital for 732 non-financial U.S. firms for the 1991-2003 time period. Loan information is sourced from the Loan Pricing Corporation Dealscan database.

The authors run both single equation regressions and a system of simultaneous equations to estimate the relationship between the CSR score and cost of debt. This analysis controls for Size (Ln of total assets), Price/Book, long-term Debt/Equity, Industry, and many other factors known to impact debt financing costs. After adjusting for these factors, the authors find that "firms with [low] KLD scores...pay an additional 16.01 basis points relative to firms with [neutral KLD scores]. This result is significant at the 5% level. As the level of concern falls, as measured by the composite KLD score, the additional compensation demanded by banks falls, both in magnitude and statistical significance." There appeared to be no benefit to CSR, performance. An analysis of matching firms confirms this result.

This study also contains very useful analysis of the CSR scores themselves, using an ordered logistic regression to demonstrate that smaller firms with low financial leverage, high basic earning power (EBIT) and high valuations (Price/Book ratio) tend to have higher social ratings. Evidence is also presented that that both very high and very low social scores tend to regress toward the mean over time, and that companies with many negatives tend to also have more positives, consistent with the idea that companies that generate externalities must make investments in CSR to offset their impact.

For a more recent and complete version of this research, see Goss and Roberts (2009).