Does Corporate D&I Engagement Payoff? Insights from Cost of Debt Analysis

Abstract

The study explores how a firm’s Diversity and Inclusion (D&I) initiatives affect its costs of debt. We find that only third-party verified D&I controversies significantly raise firms’ bond yield spreads at issuance, while self-reported D&I performance has no significant impact. Our findings suggest that the discrepancy could arise from different mechanisms through which firms disclose D&I data. Notably, we document that such discrepancy disappears in well-governed firms, in which both self-reported and verified D&I scores can help firms secure debt capital on more favorable terms.