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Dissecting the impact of the three E, S, G pillars on credit risk

Author

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  • Deng, Guoying
  • Ma, Shibo
  • Yan, Jingzhou
  • Shuai, Can
  • Liu, Hanying

Abstract

This study explores the impact of Environmental, Social, and Governance (ESG) scores on the credit risk of Chinese A-share listed companies. Based on the empirical study, we analyse both the individual and combined effects of E, S, and G scores. Our findings indicate that improvements in ESG scores significantly reduce credit risk, particularly among green companies and those with high transparency. This conclusion remains robust after accounting for potential endogeneity bias through the application of the instrumental variable method. Furthermore, our study delves into how ESG scores impact credit risk. An increase in ESG scores reduces a company’s debt default risk by decreasing the negative ESG-related news sentiment, enhancing stock liquidity, lowering financing costs, and improving the quality of internal controls. These insights contribute to a deeper understanding of ESG factors in risk management and offer practical guidance for companies seeking to enhance their ESG performance in relation to credit risk.

Suggested Citation

  • Deng, Guoying & Ma, Shibo & Yan, Jingzhou & Shuai, Can & Liu, Hanying, 2024. "Dissecting the impact of the three E, S, G pillars on credit risk," Economic Analysis and Policy, Elsevier, vol. 83(C), pages 301-313.
    • Handle: RePEc:eee:ecanpo:v:83:y:2024:i:c:p:301-313
    DOI: 10.1016/j.eap.2024.06.006
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    More about this item

    Keywords

    ESG; Credit risk; Managerial myopia; ESG news sentiment; Information disclosure;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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