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Corporate ESG competitive disadvantage and cost of debt financing

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  • Zhang, Shanfei
  • Xu, Guanghua
  • Shu, Ying
  • Zhu, Jian

Abstract

This paper examines the impact of firms' ESG competitive disadvantages on debt financing costs using data from Chinese A-share listed firms from 2011 to 2021. It reveals that (1) ESG competitive disadvantages heighten debt financing costs; (2) local environmental concerns and industry competition strengthen this relationship; (3) ESG competitive disadvantages increase financing costs through heightened financial risk and information asymmetry; and (4) this relationship is significant particularly for mature, declining, and privately-owned firms. This paper, for the first time, explores the penalisation mechanism of corporate negative ESG performance, providing new evidence to advocate for proactive ESG governance.

Suggested Citation

  • Zhang, Shanfei & Xu, Guanghua & Shu, Ying & Zhu, Jian, 2024. "Corporate ESG competitive disadvantage and cost of debt financing," Finance Research Letters, Elsevier, vol. 69(PA).
    • Handle: RePEc:eee:finlet:v:69:y:2024:i:pa:s1544612324011310
    DOI: 10.1016/j.frl.2024.106102
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