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Assessing the influence of ESG score, industry, and stock index on firm default risk: A sustainable bank lending perspective

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  • Palmieri, Egidio
  • Ferilli, Greta B.
  • Stefanelli, Valeria
  • Geretto, Enrico F.
  • Polato, Maurizio

Abstract

Using a European sample of 211 listed firms from 2013 to 2022, we analyze the mitigation effect on firms’ probability of default (PD) provided by the influence of ESG performance combined with industry and stock index membership. The results show that improvements in environmental scores reduce PD; while firms’ riskiness increases when we control for industry and stock index. From a banking perspective, we encourage a holistic approach integrating ESG scores into lending practices, adjusted by industry or stock index. Policymakers and regulators should support the widespread adoption of ESG metrics in assessing credit risk.

Suggested Citation

  • Palmieri, Egidio & Ferilli, Greta B. & Stefanelli, Valeria & Geretto, Enrico F. & Polato, Maurizio, 2023. "Assessing the influence of ESG score, industry, and stock index on firm default risk: A sustainable bank lending perspective," Finance Research Letters, Elsevier, vol. 57(C).
    • Handle: RePEc:eee:finlet:v:57:y:2023:i:c:s1544612323006463
    DOI: 10.1016/j.frl.2023.104274
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    More about this item

    Keywords

    Bank lending; Firm riskiness; ESG score; Default risk;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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