Do Lenders Value a Corporate Sustainability Structure?-Evidence from the Cost of Bank Loans

In response to pressures placed on a firm by its stakeholders, managers may initiate various corporate sustainability activities. In such cases, they need to make decisions not only about the level of sustainability commitment, but also about the way to structure it. There are numerous ways to structure corporate sustainability activities with different financial consequences. In this paper, we investigate the separate and joint effects of the corporate sustainability level and the corporate sustainability structure on a firm's bank borrowing cost. We test our predictions by conducting multivariate regression analysis on a sample of 1417 US bank loan facilities over the period 2006-2011. We find evidence that high-quality borrowers with a high level or diversified structure of sustainability activities benefit from lower loan interest rates. Also, our analysis of the joint effects shows that only high-quality borrowers with a high level and diversified sustainability activities enjoy lower bank loan costs. Overall, these results reveal that lenders value how firms structure their sustainability activities. Therefore, they have important implications for managers and bankers.