Corporate Environmental Responsibility and Credit Ratings

While prior literature focuses on the shareholder’s perspective, this study investigates the benefits of corporate environmental responsibility (CER) activities from the debtholder’s perspective. We find a strong positive relationship between CER activities and credit ratings. Specifically, the positive relationship is mainly driven by the strategy and performance factors of CER activities. Also, we find that the positive relationship is more pronounced in firms with higher agency costs. The results indicate that CER activities in emerging countries have the effect of reducing default risk and meet creditors’ interests. Additionally, it suggests that CER activities have the effectiveness of the corporate strategic perspective on corporate financing and disclosure.