Spillover Effects of CSR Disclosure Regulations across Lending Relationships

• In Event: 4. Governance

Abstract

This paper studies whether and how CSR disclosure regulations imposed on banks generates spillover effects along the lending channel. Using a staggered difference-in-differences design, I examine a sample of U.S. firms borrowing from non-U.S. banks and exploit CSR disclosure regulations adopted in the banks' home countries. My results show that borrowers that depend on mandated banks experience CSR performance improvements following the disclosure mandate. I find that these effects are more pronounced when the disclosure regulation creates a greater increase in the amount of new and hard information provided by banks, as well as when a given bank-borrower relationship is more important for a borrowing firm. Further analysis shows that exposed borrowers with better CSR performance obtain more favorable loan terms and are more likely to maintain their bank relationship. Taken together, these results documents the role of lending relationships in transmitting the effect of CSR disclosure regulation from banks to borrowing firms.

Author

• Lynn Linghuan Wang, The Hong Kong University of Science and Technology