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The Influence of Corporate Social Responsibility (CSR) Disclosure on Cost of Debt: the Evidence from Russian Public Companies

Student: Sevindzh Gurbanova

Supervisor: Elena Makushina

Faculty: Faculty of Economic Sciences

Educational Programme: Economics (Bachelor)

Year of Graduation: 2020

In this paper the link between the cost of debt and CSR disclosure, ESG performance was investigated. To obtain sample the panel data of public Russian companies were used. The time range which was taken into account was from 2013 to 2017. From the Bloomberg database, we gathered all financial metrics which were needed. Only yearly observations were analyzed in order to compare “apples to apples”, as CSR disclosure score is calculated for a 1-year period in contrast to variables for measuring leverage and profitability ratios which were used in regression as a control variables. As a proxy for the cost of debt interest rate on debt was used. We hypothesize a negative relation between CSR disclosure score and cost of debt. On the one hand, the literature documents that the higher the risk profile of the company the worse access to debt financing they have, the higher interest company must pay to debtholders. On the other hand, there are studies that stated that one of the probable reasons for the reduction of the risk profile of the company is connected with positive impacts from CSR disclosure score. CSR disclosure, ESG performance↑↑ → risk profile of the company↓↓ The risk profile of the company↓↓ → interest rate on debt ~ cost of debt↓↓ According to this logic, it can be assumed that CSR disclosure, ESG performance ↑↑ → interest rate on debt ~ cost of debt ↓↓ In this paper, we examined whether this connection is right or wrong providing empirical analysis. As a result, we probably will indicate that there is the influence of CSR disclosure, ESG scores on creditors' decision making relative to the interest rate on debt. To be more precise we assumed that this kind of nonfinancial information can be used to estimate the creditworthiness of borrowers. This means that creditors may offer a desirable interest rate on debt because of the quality of corporate social responsibilities disclosure. For creditors maybe it is important not only the financial side but the reputation of the company or project which they are going to finance. Particularly, ceteris paribus creditors will want to finance the company which discloses information about strategies, potential risks, uses secondary raw materials, tries to control carbon emission, or minimize the ecological footprint.

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