Corporate Social Responsibility and Bond Volatility

This paper examines the effects of corporate social performance and bond market reactions. We find a strong positive relationship between social performance and bond volatility after controlling for bond characteristics and firm fundamentals. The empirical results are consistent for social performance strengths and concerns and are robust to alternative measures, alternative sample periods and endogeneity controls. The main mechanism is through the short-term uncertainty that social activities bring to the firm. We find that the effect is more pronounced for firms with higher information asymmetry and higher default risk and for bonds with higher rollover risk and less investor attention.