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ESG controversies and the cost of debt and equity: Evidence from Europe

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  • Arcidiacono, Daniele
  • Fraccalvieri, Giuseppe
  • Caragnano, Alessandra
  • Frascati, Domenico

Abstract

This study explores how ESG controversies affect to the cost of debt and equity. On a sample of 474 non-financial firms listed on the STOXX Europe 600 from 2016 to 2023, we show that ESG controversies significantly affect both categories of financing costs. The effects vary across ESG sub-pillars and are influenced by factors such as country-level regulatory quality, firm size, and default probability. Furthermore, based on Legitimacy Theory, we identify market uncertainty as a key transmission channel: ESG controversies raise questions about a firm’s legitimacy to operate, prompting stakeholder concerns about future conduct, regulatory fines, and profitability, ultimately worsening financing conditions.

Suggested Citation

  • Arcidiacono, Daniele & Fraccalvieri, Giuseppe & Caragnano, Alessandra & Frascati, Domenico, 2026. "ESG controversies and the cost of debt and equity: Evidence from Europe," Finance Research Letters, Elsevier, vol. 93(C).
    • Handle: RePEc:eee:finlet:v:93:y:2026:i:c:s1544612326001881
    DOI: 10.1016/j.frl.2026.109657
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