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- 1.
CSR activities might enhance the long-term profitability of the firm, but this is not the focus of this study, in which we discuss default within a relatively short term. It is difficult to assume that firms can reduce asset volatility without lowering the growth rate of assets in the short term.
- 2.
According to Suto and Takehara (2015), the average response rate to Toyo Keizai’s CSR questionnaire survey for 2007–2011 is 29.7%.
- 3.
The slopes for other control variables are not reported because of space constraints. They are available from the authors upon request.
- 4.
In cases in which it is difficult to obtain the estimate of drift with precision, practitioners often set the drift equal to 0 when they compute risk measures. This accepted practice and the low risk-free interest rate in our observation period warrants our assumption that μ A = r f .
- 5.
These notations are from Sundaram and Das (2011).
- 6.
Recall that the LGD is a percentage of principal debt and interest on a debt that will not be recovered if a borrower defaults. Since the recovery rate (RR) is defined as 1 − LGD, it is the proportion of principal debt and interest that can be recovered expressed as a percentage of the debt instrument’s face value.
- 7.
To simplify the discussion, we set the risk-free interest rate at 2% and assume that it is constant during our sample period.
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Suto, M., Takehara, H. (2018). Effects of Corporate Social Performance on Default Risk: Structural Model-Based Analysis on Japanese Firms. In: Corporate Social Responsibility and Corporate Finance in Japan. Advances in Japanese Business and Economics. Springer, Singapore. https://doi.org/10.1007/978-981-10-8986-2_8
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