The Effects of Corporate Social Performance (CSP) on Credit Ratings - Evidence from the European Market

Purpose: The purpose of this thesis is to fill the existing research gap in Europe by examining the effect of corporate social performance (CSP) on firms’ credit ratings. Methodology: Through a quantitative research strategy, we examine the relationship between CSP and firms’ credit rating using a fixed effects regressions analysis based on a panel data set. Theoretical perspectives: The theoretical perspectives that are trying to explain the relationship between CSP and firms’ credit ratings are the agency, stakeholder and risk management theories. We are therefore using theoretical arguments from these theories. Empirical foundation: The empirical foundation is built on a comprehensive panel data set of 3,687 firm-year observations representing 320 firms listed on the Europe STOXX 600 Index over the time period 2002-2018. Data is accessed from Thomson Reuters Eikon, Thomson Reuters ASSET4 and Thomson Reuters Datastream. Conclusions: Our empirical findings suggest a positive and statistically significant relationship between CSP and firms’ credit rating. The empirical results are consistent with our hypothesis and theoretical predictions after conducting several empirical tests and controlling for endogeneity. In terms of economic significance, our empirical results suggest that a higher level of CSP are awarded with a slightly higher credit rating. Our empirical findings can help corporate managers to make better-informed decisions when investing in CSR