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ESG performance and cost of capital: what do we know? Evidence from the US

Author

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  • Ricky Wong
  • Hoang Thi My Nguyen
  • Nana Abena Kwansa

Abstract

This paper empirically examines the impact of environmental, social and governance (ESG) performance and its individual components on the cost of debt and the cost of equity. Using a sample of S%P 500 firms from 2015 to 2021, we find that strong ESG performance reduces the cost of debt and the cost of equity. Furthermore, our analyses on the individual constituents of the ESG performance indicate that firms with high environmental and social performance benefit from both lower cost of debt and cost of equity with the effect more pronounced for cost of equity. The evidence also indicates that high performance in governance only has implications for equity cost of capital. The evidence supports the position that integrating relevant ESG activities in firm business model has capital raising benefits.

Suggested Citation

  • Ricky Wong & Hoang Thi My Nguyen & Nana Abena Kwansa, 2024. "ESG performance and cost of capital: what do we know? Evidence from the US," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 17(1), pages 74-96.
    • Handle: RePEc:ids:ijmefi:v:17:y:2024:i:1:p:74-96
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