CORPORATE SOCIAL RESPONSIBILITY AND CREDIT RATING: THE CASE OF INDONESIAN FIRMS

• Main Author: Disca Fardhani, Adhelia
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/78802
• Institution: Institut Teknologi Bandung

Corporate Social Responsibility (CSR) has become an important issue in recent decade because CSR takes role in building stakeholders’ trust and firms’ image for competing in the market. CSR becomes important for Indonesian firms as well since the government issued Law No. 25 year 2007 and Law No. 40 year 2007 which states that CSR is a mandatory for Indonesian listed firms. In addition, CSR generates intangible benefits to firms such as good corporate image. Past study even shows that there is a positive relationship between CSR and financial performance such as stock return, ROA, and credit ratings. The aim of this study is to provide evidence on the relationship between CSR and credit ratings of 53 firms in Indonesia in 2013. CSR is measured using G4 Reporting Principles and Standard Disclosures by Global Reporting Initiative (GRI) while the credit ratings are employed using the credit ratings issued by PEFINDO – an Indonesian credit rating agency. Using ordered probit model, the results report that there is positive and significant association between CSR and credit ratings of Indonesian firms on firm credit ratings using both aggregate and individual component of CSR measures consistent with Attig et al (2012). The results suggest that CSR matters in the assessment of firms’ creditworthiness by rating agencies. Our findings further suggest that firms can enhance stakeholder value by promoting CSR.