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The ESG effect on the cost of debt financing: A sharp RD analysis

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  • Gigante, Gimede
  • Manglaviti, Davide

Abstract

Environmental, social, and governance (ESG) factors have become increasingly relevant within the financial world. Despite extensive evidence regarding the equity side, limited studies in the literature have investigated the potential effects of ESG performance on the main drivers of debt. This study aims to understand whether there is a positive effect from a cost of debt standpoint for corporations with relatively better ESG performance. Using the ESG score by Refinitiv and a sharp regression discontinuity design, we do not find statistically significant evidence for discrete jumps in correspondence with the ESG score average for the cost of debt of European nonfinancial corporates over the 2018–2020 period. In a sharp regression discontinuity setting, we obtain analogous results by developing a linear probability model.

Suggested Citation

  • Gigante, Gimede & Manglaviti, Davide, 2022. "The ESG effect on the cost of debt financing: A sharp RD analysis," International Review of Financial Analysis, Elsevier, vol. 84(C).
    • Handle: RePEc:eee:finana:v:84:y:2022:i:c:s1057521922003325
    DOI: 10.1016/j.irfa.2022.102382
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    2. Kudryashov, Alexander, 2023. "ESG Transformation: A Roadmap for Russia’s Sustainable Development /– Tallinn : OPEN EUROPEAN ACADEMY OF PUBLIC SCIENCES OÜ, 2023," OSF Preprints 6j8ux, Center for Open Science.
    3. Fiordelisi, Franco & Ricci, Ornella & Santilli, Gianluca, 2023. "Environmental engagement and stock price crash risk: Evidence from the European banking industry," International Review of Financial Analysis, Elsevier, vol. 88(C).
    4. Jiajia Liu & Zhenzhen Ge & Yahan Wang, 2024. "Role of environmental, social, and governance rating data in predicting financial risk and risk management," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(1), pages 260-273, January.
    5. Thamir Al Barrak & Kaouther Chebbi & Abdullah A. Aljughaiman & Mohammed Albarrak, 2023. "Exploring the Interplay between Sustainability and Debt Costs in an Emerging Market: Does Financial Distress Matter?," Sustainability, MDPI, vol. 15(12), pages 1-19, June.
    6. Jin Wang & Zihan Hong & Hai Long, 2023. "Digital Transformation Empowers ESG Performance in the Manufacturing Industry: From ESG to DESG," SAGE Open, , vol. 13(4), pages 21582440231, October.

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    More about this item

    Keywords

    Corporate social performance; Cost of debt; CSR; ESG; Governance; Green bond; Leverage; Linear probability model; Sharp regression discontinuity; Sustainable finance;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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