IDEAS home Printed from https://ideas.repec.org/p/hal/journl/hal-03897987.html
   My bibliography  Save this paper

The effect of countries’ ESG ratings on their sovereign borrowing costs

Author

Listed:
  • Patricia Crifo
  • Marc-Arthur Diaye

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Rim Oueghlissi

Abstract

We examine whether the extra-financial performance of countries on environmental, social and governance (ESG) factors matters for sovereign bonds markets. Using a panel regression model over a data set with 23 OECD countries from 2007 to 2012, we show that ESG ratings significantly decrease government bond spreads.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Patricia Crifo & Marc-Arthur Diaye & Rim Oueghlissi, 2017. "The effect of countries’ ESG ratings on their sovereign borrowing costs," Post-Print hal-03897987, HAL.
    • Handle: RePEc:hal:journl:hal-03897987
    DOI: 10.1016/j.qref.2017.04.011
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Eaton, Jonathan & Fernandez, Raquel, 1995. "Sovereign debt," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 3, pages 2031-2077, Elsevier.
    2. Bastien Drut, 2010. "Sovereign Bonds and Socially Responsible Investment," Journal of Business Ethics, Springer, vol. 92(1), pages 131-145, April.
    3. Luciana Barbosa & Sónia Costa, 2010. "Determinants of sovereign bond yield spreads in the euro area in the context of the economic and financial crisis," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
    4. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Debt Intolerance," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(1), pages 1-74.
    5. Timothy Besley & Maitreesh Ghatak, 2005. "Competition and Incentives with Motivated Agents," American Economic Review, American Economic Association, vol. 95(3), pages 616-636, June.
    6. Wooldridge, Jeffrey M., 2005. "Instrumental Variables Estimation With Panel Data," Econometric Theory, Cambridge University Press, vol. 21(4), pages 865-869, August.
    7. Atish R. Ghosh & Jun I. Kim & Enrique G. Mendoza & Jonathan D. Ostry & Mahvash S. Qureshi, 2013. "Fiscal Fatigue, Fiscal Space and Debt Sustainability in Advanced Economies," Economic Journal, Royal Economic Society, vol. 0, pages 4-30, February.
    8. Ciocchini, Francisco & Durbin, Erik & Ng, David T. C., 2003. "Does corruption increase emerging market bond spreads?," Journal of Economics and Business, Elsevier, vol. 55(5-6), pages 503-528.
    9. D’Agostino, Antonello & Ehrmann, Michael, 2014. "The pricing of G7 sovereign bond spreads – The times, they are a-changin," Journal of Banking & Finance, Elsevier, vol. 47(C), pages 155-176.
    10. Schuknecht, Ludger & von Hagen, Jürgen & Wolswijk, Guido, 2009. "Government risk premiums in the bond market: EMU and Canada," European Journal of Political Economy, Elsevier, vol. 25(3), pages 371-384, September.
    11. Bernoth, Kerstin & von Hagen, Jürgen & Schuknecht, Ludger, 2012. "Sovereign risk premiums in the European government bond market," Journal of International Money and Finance, Elsevier, vol. 31(5), pages 975-995.
    12. Bernoth, Kerstin & Erdogan, Burcu, 2012. "Sovereign bond yield spreads: A time-varying coefficient approach," Journal of International Money and Finance, Elsevier, vol. 31(3), pages 639-656.
    13. Bulow, Jeremy & Rogoff, Kenneth, 1989. "Sovereign Debt: Is to Forgive to Forget?," American Economic Review, American Economic Association, vol. 79(1), pages 43-50, March.
    14. Joseph W. Gruber & Steven B. Kamin, 2012. "Fiscal Positions and Government Bond Yields in OECD Countries," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(8), pages 1563-1587, December.
    15. Ardagna Silvia & Caselli Francesco & Lane Timothy, 2007. "Fiscal Discipline and the Cost of Public Debt Service: Some Estimates for OECD Countries," The B.E. Journal of Macroeconomics, De Gruyter, vol. 7(1), pages 1-35, August.
    16. Liu, Zhuoshi & Spencer, Peter, 2013. "Modelling sovereign credit spreads with international macro-factors: The case of Brazil 1998–2009," Journal of Banking & Finance, Elsevier, vol. 37(2), pages 241-256.
    17. Moser, Christoph, 2007. "The Impact of Political Risk on Sovereign Bond Spreads - Evidence from Latin America," Proceedings of the German Development Economics Conference, Göttingen 2007 24, Verein für Socialpolitik, Research Committee Development Economics.
    18. Bruno S. Frey, 1997. "Not Just for the Money," Books, Edward Elgar Publishing, number 1183.
    19. Ebner, André, 2009. "An empirical analysis on the determinants of CEE government bond spreads," Emerging Markets Review, Elsevier, vol. 10(2), pages 97-121, June.
    20. Afonso, António & Arghyrou, Michael G. & Bagdatoglou, George & Kontonikas, Alexandros, 2015. "On the time-varying relationship between EMU sovereign spreads and their determinants," Economic Modelling, Elsevier, vol. 44(C), pages 363-371.
    21. Maltritz, Dominik, 2012. "Determinants of sovereign yield spreads in the Eurozone: A Bayesian approach," Journal of International Money and Finance, Elsevier, vol. 31(3), pages 657-672.
    22. Emanuel Kohlscheen, 2007. "Why Are There Serial Defaulters? Evidence from Constitutions," Journal of Law and Economics, University of Chicago Press, vol. 50(4), pages 713-730.
    23. Mr. Ashoka Mody, 2009. "From Bear Stearns to Anglo Irish: How Eurozone Sovereign Spreads Related to Financial Sector Vulnerability," IMF Working Papers 2009/108, International Monetary Fund.
    24. Jonathan Eaton & Mark Gersovitz, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 48(2), pages 289-309.
    25. Attinasi, Maria Grazia & Checherita-Westphal, Cristina & Nickel, Christiane, 2009. "What explains the surge in euro area sovereign spreads during the financial crisis of 2007-09?," Working Paper Series 1131, European Central Bank.
    26. Simone Manganelli & Guido Wolswijk, 2009. "What drives spreads in the euro area government bond market? [‘What “hides” behind sovereign debt ratings?’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 24(58), pages 191-240.
    27. Mr. Manmohan S. Kumar & Mr. Emanuele Baldacci, 2010. "Fiscal Deficits, Public Debt, and Sovereign Bond Yields," IMF Working Papers 2010/184, International Monetary Fund.
    28. Gomez-Puig, Marta, 2006. "Size matters for liquidity: Evidence from EMU sovereign yield spreads," Economics Letters, Elsevier, vol. 90(2), pages 156-162, February.
    29. David Haugh & Patrice Ollivaud & David Turner, 2009. "What Drives Sovereign Risk Premiums?: An Analysis of Recent Evidence from the Euro Area," OECD Economics Department Working Papers 718, OECD Publishing.
    30. Eichholtz, Piet & Kok, Nils & Yonder, Erkan, 2012. "Portfolio greenness and the financial performance of REITs," Journal of International Money and Finance, Elsevier, vol. 31(7), pages 1911-1929.
    31. Lorenzo Codogno & Carlo Favero & Alessandro Missale, 2003. "Yield spreads on EMU government bonds [‘Fiscal policy events and interest rate swap spreads: some evidence from the EU’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 18(37), pages 503-532.
    32. Jens Hilscher & Yves Nosbusch, 2010. "Determinants of Sovereign Risk: Macroeconomic Fundamentals and the Pricing of Sovereign Debt," Review of Finance, European Finance Association, vol. 14(2), pages 235-262.
    33. Ms. Edda Zoli & Ms. Silvia Sgherri, 2009. "Euro Area Sovereign Risk During the Crisis," IMF Working Papers 2009/222, International Monetary Fund.
    34. Roland Bénabou & Jean Tirole, 2003. "Intrinsic and Extrinsic Motivation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 70(3), pages 489-520.
    35. Mora, Nada, 2006. "Sovereign credit ratings: Guilty beyond reasonable doubt?," Journal of Banking & Finance, Elsevier, vol. 30(7), pages 2041-2062, July.
    36. Gianluigi Ferrucci, 2003. "Empirical determinants of emerging market economies' sovereign bond spreads," Bank of England working papers 205, Bank of England.
    37. Ali Alichi, 2008. "A Model of Sovereign Debt in Democracies," IMF Working Papers 2008/152, International Monetary Fund.
    38. Eichler, Stefan & Maltritz, Dominik, 2013. "The term structure of sovereign default risk in EMU member countries and its determinants," Journal of Banking & Finance, Elsevier, vol. 37(6), pages 1810-1816.
    39. Richard Cantor & Frank Packer, 1996. "Determinants and impact of sovereign credit ratings," Economic Policy Review, Federal Reserve Bank of New York, vol. 2(Oct), pages 37-53.
    40. Salvador Barrios & Per Iversen & Magdalena Lewandowska & Ralph Setzer, 2009. "Determinants of intra-euro area government bond spreads during the financial crisis," European Economy - Economic Papers 2008 - 2015 388, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    41. Michael Connolly, 2007. "Measuring the Effect of Corruption on Sovereign Bond Ratings," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 10(4), pages 309-323.
    42. Michael Connolly, 2007. "Measuring the Effect of Corruption on Sovereign Bond Ratings," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 10(4), pages 309-323.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Pineau, Edouard & Le, Phuong & Estran, Rémy, 2022. "Importance of ESG factors in sovereign credit ratings," Finance Research Letters, Elsevier, vol. 49(C).
    2. Cumming, Douglas & Meoli, Michele & Rossi, Alice & Vismara, Silvio, 2024. "ESG and crowdfunding platforms," Journal of Business Venturing, Elsevier, vol. 39(1).
    3. Boitan, Iustina Alina & Marchewka-Bartkowiak, Kamilla, 2022. "Climate change and the pricing of sovereign debt: Insights from European markets," Research in International Business and Finance, Elsevier, vol. 62(C).
    4. Liu, Lian & Nemoto, Naoko & Lu, Changrong, 2023. "The Effect of ESG performance on the stock market during the COVID-19 Pandemic — Evidence from Japan," Economic Analysis and Policy, Elsevier, vol. 79(C), pages 702-712.
    5. Marc-Arthur Diaye & Sy-Hoa Ho & Rim Oueghlissi, 2022. "ESG performance and economic growth: a panel co-integration analysis," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 49(1), pages 99-122, February.
    6. Alexandru Cosmin BUTEICÃ & Cãtãlin Emilian HUIDUMAC-PETRESCU, 2019. "A Review Of Recent Trends To Establish Nature-Related Financial Considerations," Proceedings of the INTERNATIONAL MANAGEMENT CONFERENCE, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 13(1), pages 692-701, November.
    7. Vincenzo D’Apice & Giovanni Ferri & Francesca Lipari, 2020. "Sustainable Disclosure Policies and Sustainable Performance of European Listed Companies," Sustainability, MDPI, vol. 12(15), pages 1-19, July.
    8. Hübel, Benjamin, 2022. "Do markets value ESG risks in sovereign credit curves?," The Quarterly Review of Economics and Finance, Elsevier, vol. 85(C), pages 134-148.
    9. Beckmann, Joscha & Rogmann, Jennifer, 2024. "Determinants and effects of country ESG controversy," Energy Economics, Elsevier, vol. 131(C).
    10. Maria E. de Boyrie & Ivelina Pavlova, 2020. "Analysing the link between environmental performance and sovereign credit risk," Applied Economics, Taylor & Francis Journals, vol. 52(54), pages 5949-5966, November.
    11. Alves, Carlos Francisco & Meneses, Lilian Lima, 2024. "ESG scores and debt costs: Exploring indebtedness, agency costs, and financial system impact," International Review of Financial Analysis, Elsevier, vol. 94(C).
    12. Y. Y. Yip* & H. H. Lee, 2018. "Does ESG Disclosure Create Value to Firms? The Malaysian Case," The Journal of Social Sciences Research, Academic Research Publishing Group, pages 515-521:6.
    13. Anand, Arsh & Vanpée, Rosanne & Lončarski, Igor, 2023. "Sustainability and sovereign credit risk," International Review of Financial Analysis, Elsevier, vol. 86(C).
    14. Changhong Zhao & Yu Guo & Jiahai Yuan & Mengya Wu & Daiyu Li & Yiou Zhou & Jiangang Kang, 2018. "ESG and Corporate Financial Performance: Empirical Evidence from China’s Listed Power Generation Companies," Sustainability, MDPI, vol. 10(8), pages 1-18, July.
    15. Shu-Ling Lin & Xiao Jin, 2023. "Does ESG Predict Systemic Banking Crises? A Computational Economics Model of Early Warning Systems with Interpretable Multi-Variable LSTM based on Mixture Attention," Mathematics, MDPI, vol. 11(2), pages 1-15, January.
    16. Billio, Monica & Costola, Michele & Hristova, Iva & Latino, Carmelo & Pelizzon, Loriana, 2022. "Sustainable finance: A journey toward ESG and climate risk," SAFE Working Paper Series 349, Leibniz Institute for Financial Research SAFE.
    17. Eliwa, Yasser & Aboud, Ahmed & Saleh, Ahmed, 2021. "ESG practices and the cost of debt: Evidence from EU countries," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 79(C).
    18. Anamaria Dan & Adriana Tiron-Tudor, 2021. "The Determinants of Green Bond Issuance in the European Union," JRFM, MDPI, vol. 14(9), pages 1-15, September.
    19. Niranjan Chipalkatti & Quan Vu Le & Meenakshi Rishi, 2021. "Sustainability and Society: Do Environmental, Social, and Governance Factors Matter for Foreign Direct Investment?," Energies, MDPI, vol. 14(19), pages 1-18, September.
    20. Youngtae Yoo, 2021. "Non-Financial Environmental Responsibility Information, Information Environment, and Credit Ratings: Evidence from South Korea," Sustainability, MDPI, vol. 13(3), pages 1-18, January.
    21. M. Utku Özmen, 2019. "Economic complexity and sovereign risk premia," Economics Bulletin, AccessEcon, vol. 39(3), pages 1714-1726.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Patricia Crifo & Marc-Arthur Diaye & Rim Oueghlissi, 2014. "Measuring the effect of government ESG performance on sovereign borrowing cost," CIRANO Working Papers 2014s-37, CIRANO.
    2. Capelle-Blancard, Gunther & Crifo, Patricia & Diaye, Marc-Arthur & Oueghlissi, Rim & Scholtens, Bert, 2019. "Sovereign bond yield spreads and sustainability: An empirical analysis of OECD countries," Journal of Banking & Finance, Elsevier, vol. 98(C), pages 156-169.
    3. Gunther Capelle-Blancard & Patricia Crifo & Marc-Arthur Diaye & Rim Oueghlissi & Bert Scholtens, 2016. "Environmental, Social and Governance (ESG) performance and sovereign bond spreads: an empirical analysis of OECD countries," Working Papers hal-01401718, HAL.
    4. Samir Kadiric, 2020. "The determinants of sovereign risk premiums in the UK and the European government bond market: The impact of Brexit," EIIW Discussion paper disbei271, Universitätsbibliothek Wuppertal, University Library.
    5. D’Agostino, Antonello & Ehrmann, Michael, 2014. "The pricing of G7 sovereign bond spreads – The times, they are a-changin," Journal of Banking & Finance, Elsevier, vol. 47(C), pages 155-176.
    6. Samir Kadiric, 2022. "The determinants of sovereign risk premiums in the UK and the European government bond market: the impact of Brexit," International Economics and Economic Policy, Springer, vol. 19(2), pages 267-298, May.
    7. Paweł Tobera, 2019. "Ocena ratingowa a koszt obsługi długu publicznego w krajach Europy Środkowo-Wschodniej w latach 2005–2017," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 1, pages 87-109.
    8. António Afonso & Michael G. Arghyrou & Alexandros Kontonikas, 2012. "The determinants of sovereign bond yield spreads in the EMU," Working Papers 2012_14, Business School - Economics, University of Glasgow.
    9. Piotr Ciżkowicz & Grzegorz Parosa & Andrzej Rzońca, 2022. "Fiscal tensions and risk premium," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 49(3), pages 833-896, August.
    10. Arghyrou, Michael G. & Kontonikas, Alexandros, 2012. "The EMU sovereign-debt crisis: Fundamentals, expectations and contagion," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(4), pages 658-677.
    11. Afonso, António & Martins, Manuel M.F., 2012. "Level, slope, curvature of the sovereign yield curve, and fiscal behaviour," Journal of Banking & Finance, Elsevier, vol. 36(6), pages 1789-1807.
    12. Luciana Barbosa & Sónia Costa, 2010. "Determinants of sovereign bond yield spreads in the euro area in the context of the economic and financial crisis," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
    13. Fazlioglu, S., 2013. "Determinants of sovereign debt yield spreads under EMU: Pairwise approach," Research Memorandum 007, Maastricht University, Graduate School of Business and Economics (GSBE).
    14. Jeanneret, Alexandre & Souissi, Slim, 2016. "Sovereign defaults by currency denomination," Journal of International Money and Finance, Elsevier, vol. 60(C), pages 197-222.
    15. Juodžiukynienė Greta, 2016. "The Significance of Country-Specific and Common Risk Factors for CEE Government Bond Spreads Changes," Ekonomika (Economics), Sciendo, vol. 95(1), pages 84-111, January.
    16. Sha Liu, 2014. "The Impact of Textual Sentiment on Sovereign Bond Yield Spreads: Evidence from the Eurozone Crisis," Multinational Finance Journal, Multinational Finance Journal, vol. 18(3-4), pages 215-248, September.
    17. Britta Niehof, 2014. "Spillover Effects in Government Bond Spreads: Evidence from a GVAR Model," MAGKS Papers on Economics 201458, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    18. António Afonso & João Tovar Jalles, 2020. "Economic volatility and sovereign yields’ determinants: a time-varying approach," Empirical Economics, Springer, vol. 58(2), pages 427-451, February.
    19. Paolo Canofari & Giancarlo Marini & Giovanni Piersanti, 2015. "Expectations and systemic risk in EMU government bond spreads," Quantitative Finance, Taylor & Francis Journals, vol. 15(4), pages 711-724, April.
    20. repec:ecb:ecbops:2014165 is not listed on IDEAS
    21. Nasir, Muhammad Ali & Le, Thi Ngoc Lan & Ghabri, Yosra & Huynh, Luu Duc Toan, 2023. "Sovereign bonds and flight to safety: Implications of the COVID-19 crisis for sovereign debt markets in the G-7 and E-7 economies," International Review of Financial Analysis, Elsevier, vol. 86(C).

    More about this item

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:journl:hal-03897987. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.