The ESG Effect: Unveiling Its Influence on Capital Structure in Finance

The growing interest in ESG has increased the desire to understand how it influences financial decisions regarding capital structure. Using econometric techniques, the research analyzes how ESG factors influence financing structure, focusing on a sample of financial companies in Europe, North America and Asia. The results indicated that capital structure decisions are influenced by ESG, although there are differences across regions. In general, environmental and governance issues are positively correlated with leverage, emphasizing the idea of improved credit worthiness and better financing conditions. On the other hand, companies that are more socially focused rely more on equity due to the higher trust obtained from investors, lower risk perceptions and a strategic preference for conservatism. The findings highlight companies’ trade-offs when it comes to sustainability goals and financing structure, with ESG playing a dual role in market positioning and financial resilience. The current study contributes to the existing literature on sustainable finance by providing evidence-based information that ESG influences the capital structure of financial firms. It is particularly useful for investors, policy makers and financial institutions that strive to maintain a balance between sustainability and efficient capital management.