In the interest of small business’ cost of debt: A matter of CSR disclosure

Traditional understanding is that small firms pay more in debt related expenses than larger firms with a history of financial performance. In the current study, we examine the impact that corporate social responsibility (CSR) disclosure has on the cost of debt for small firms. Using data from Bloomberg 2014 on CSR disclosure, we find that the cost of debt for small businesses decreases as firms increase their CSR disclosure transparency. Specifically, firms who disclose more social responsibility information faced reduced costs to debt financing. We argue that disclosure of Environment, Social, and Governance (ESG) records provide value relevant information for lenders to use to mitigate the magnified information asymmetry inherent to lending to firms earlier in their lifecycle. Our results suggest that disclosure of ESG information corresponds with improved information transparency, which leads to less costly debt for small businesses.