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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.

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  • 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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    References listed on IDEAS

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    2. Wen, Jun & Farooq, Umar & Alomair, Abdulrahman & Al Naim, Abdulaziz S., 2025. "ESG performance and capital investment: Understanding the role of bank financing in BRICS countries," Research in International Business and Finance, Elsevier, vol. 79(C).
    3. Xu, Qifa & Ruan, Changyu & Jiang, Cuixia & Li, Li, 2025. "The spillover effect of core enterprises' ESG performance on node enterprises' debt financing costs," Global Finance Journal, Elsevier, vol. 68(C).
    4. Boccaletti, Simone & Gucciardi, Gianluca & Ruberti, Massimo, 2026. "Environmental sectoral classification and ESG signals: Evidence on the cost of debt from the EU Taxonomy," Research in International Business and Finance, Elsevier, vol. 83(C).
    5. Zhou, Yong & Zhang, Jin, 2025. "How does anti-unfair competition law reduce enterprises' financing costs?," Finance Research Letters, Elsevier, vol. 85(PC).
    6. Chen, Guorong & Xing, Xiaoyun & Deng, Jing, 2025. "Climate–biodiversity–finance nexus: Comparative evidence from the U.S. and China," Finance Research Letters, Elsevier, vol. 86(PA).
    7. Wang, Yutong & Wang, Zengwen, 2026. "Impact of social insurance contribution burden on corporate debt financing: mechanisms and microeconomic consequences," Finance Research Letters, Elsevier, vol. 92(C).
    8. Du, Linqi & Lu, Na, 2025. "Do ESG incidents matter for corporate cost of debt? Evidence from China," Finance Research Letters, Elsevier, vol. 86(PB).

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