IDEAS home Printed from https://ideas.repec.org/a/eee/finana/v84y2022ics1057521922003325.html
   My bibliography  Save this article

The ESG effect on the cost of debt financing: A sharp RD analysis

Author

Listed:
  • Gigante, Gimede
  • Manglaviti, Davide

Abstract

Environmental, social, and governance (ESG) factors have become increasingly relevant within the financial world. Despite extensive evidence regarding the equity side, limited studies in the literature have investigated the potential effects of ESG performance on the main drivers of debt. This study aims to understand whether there is a positive effect from a cost of debt standpoint for corporations with relatively better ESG performance. Using the ESG score by Refinitiv and a sharp regression discontinuity design, we do not find statistically significant evidence for discrete jumps in correspondence with the ESG score average for the cost of debt of European nonfinancial corporates over the 2018–2020 period. In a sharp regression discontinuity setting, we obtain analogous results by developing a linear probability model.

Suggested Citation

  • Gigante, Gimede & Manglaviti, Davide, 2022. "The ESG effect on the cost of debt financing: A sharp RD analysis," International Review of Financial Analysis, Elsevier, vol. 84(C).
    • Handle: RePEc:eee:finana:v:84:y:2022:i:c:s1057521922003325
    DOI: 10.1016/j.irfa.2022.102382
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1057521922003325
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.irfa.2022.102382?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Francis, Jennifer & LaFond, Ryan & Olsson, Per & Schipper, Katherine, 2005. "The market pricing of accruals quality," Journal of Accounting and Economics, Elsevier, vol. 39(2), pages 295-327, June.
    2. Lalive, Rafael, 2008. "How do extended benefits affect unemployment duration A regression discontinuity approach," Journal of Econometrics, Elsevier, vol. 142(2), pages 785-806, February.
    3. Raffaello Bronzini & Eleonora Iachini, 2014. "Are Incentives for R&D Effective? Evidence from a Regression Discontinuity Approach," American Economic Journal: Economic Policy, American Economic Association, vol. 6(4), pages 100-134, November.
    4. Malcolm Baker & Daniel Bergstresser & George Serafeim & Jeffrey Wurgler, 2018. "Financing the Response to Climate Change: The Pricing and Ownership of U.S. Green Bonds," NBER Working Papers 25194, National Bureau of Economic Research, Inc.
    5. Philip Gray & Ping‐Sheng Koh & Yen H Tong, 2009. "Accruals Quality, Information Risk and Cost of Capital: Evidence from Australia," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 36(1‐2), pages 51-72, January.
    6. David S. Lee & Thomas Lemieux, 2010. "Regression Discontinuity Designs in Economics," Journal of Economic Literature, American Economic Association, vol. 48(2), pages 281-355, June.
    7. Gunnar Friede & Timo Busch & Alexander Bassen, 2015. "ESG and financial performance: aggregated evidence from more than 2000 empirical studies," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 5(4), pages 210-233, October.
    8. Stellner, Christoph & Klein, Christian & Zwergel, Bernhard, 2015. "Corporate social responsibility and Eurozone corporate bonds: The moderating role of country sustainability," Journal of Banking & Finance, Elsevier, vol. 59(C), pages 538-549.
    9. Sebastian Calonico & Matias D. Cattaneo & Rocio Titiunik, 2014. "Robust Nonparametric Confidence Intervals for Regression‐Discontinuity Designs," Econometrica, Econometric Society, vol. 82, pages 2295-2326, November.
    10. Anderson, Ronald C. & Mansi, Sattar A. & Reeb, David M., 2003. "Founding family ownership and the agency cost of debt," Journal of Financial Economics, Elsevier, vol. 68(2), pages 263-285, May.
    11. Philip Gray & Ping-Sheng Koh & Yen H Tong, 2009. "Accruals Quality, Information Risk and Cost of Capital: Evidence from Australia," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 36(1-2), pages 51-72.
    12. Paul Gompers & Joy Ishii & Andrew Metrick, 2003. "Corporate Governance and Equity Prices," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(1), pages 107-156.
    13. Andreas Hoepner & Ioannis Oikonomou & Bert Scholtens & Michael Schröder, 2016. "The Effects of Corporate and Country Sustainability Characteristics on The Cost of Debt: An International Investigation," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 43(1-2), pages 158-190, January.
    14. Xu, Ke-Li, 2017. "Regression discontinuity with categorical outcomes," Journal of Econometrics, Elsevier, vol. 201(1), pages 1-18.
    15. David S. Lee, 2001. "The Electoral Advantage to Incumbency and Voters' Valuation of Politicians' Experience: A Regression Discontinuity Analysis of Elections to the U.S..," NBER Working Papers 8441, National Bureau of Economic Research, Inc.
    16. Jong Chool Park & Qiang Wu, 2009. "Financial Restatements, Cost of Debt and Information Spillover: Evidence From the Secondary Loan Market," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 36(9‐10), pages 1117-1147, November.
    17. Wang, Ashley W. & Zhang, Gaiyan, 2009. "Institutional ownership and credit spreads: An information asymmetry perspective," Journal of Empirical Finance, Elsevier, vol. 16(4), pages 597-612, September.
    18. Jong Chool Park & Qiang Wu, 2009. "Financial Restatements, Cost of Debt and Information Spillover: Evidence From the Secondary Loan Market," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 36(9-10), pages 1117-1147.
    19. Guido Imbens & Karthik Kalyanaraman, 2012. "Optimal Bandwidth Choice for the Regression Discontinuity Estimator," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 79(3), pages 933-959.
    20. Bertanha, Marinho, 2020. "Regression discontinuity design with many thresholds," Journal of Econometrics, Elsevier, vol. 218(1), pages 216-241.
    21. K.J. Martijn Cremers & Vinay B. Nair & Chenyang Wei, 2007. "Governance Mechanisms and Bond Prices," The Review of Financial Studies, Society for Financial Studies, vol. 20(5), pages 1359-1388, 2007 07.
    22. Ioannis Oikonomou & Chris Brooks & Stephen Pavelin, 2014. "The Effects of Corporate Social Performance on the Cost of Corporate Debt and Credit Ratings," The Financial Review, Eastern Finance Association, vol. 49(1), pages 49-75, February.
    23. Matias D. Cattaneo & Nicolas Idrobo & Rocio Titiunik, 2019. "A Practical Introduction to Regression Discontinuity Designs: Foundations," Papers 1911.09511, arXiv.org.
    24. Lee, David S., 2008. "Randomized experiments from non-random selection in U.S. House elections," Journal of Econometrics, Elsevier, vol. 142(2), pages 675-697, February.
    25. Andrew Gelman & Guido Imbens, 2019. "Why High-Order Polynomials Should Not Be Used in Regression Discontinuity Designs," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 37(3), pages 447-456, July.
    26. Klock, Mark S. & Mansi, Sattar A. & Maxwell, William F., 2005. "Does Corporate Governance Matter to Bondholders?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 40(4), pages 693-719, December.
    27. Ann L. Owen, 2010. "Grades, Gender, and Encouragement: A Regression Discontinuity Analysis," The Journal of Economic Education, Taylor & Francis Journals, vol. 41(3), pages 217-234, June.
    28. Duchini, Emma, 2017. "Is college remedial education a worthy investment? New evidence from a sharp regression discontinuity design," Economics of Education Review, Elsevier, vol. 60(C), pages 36-53.
    29. Yu, Ellen Pei-yi & Luu, Bac Van & Chen, Catherine Huirong, 2020. "Greenwashing in environmental, social and governance disclosures," Research in International Business and Finance, Elsevier, vol. 52(C).
    30. La Rosa, Fabio & Liberatore, Giovanni & Mazzi, Francesco & Terzani, Simone, 2018. "The impact of corporate social performance on the cost of debt and access to debt financing for listed European non-financial firms," European Management Journal, Elsevier, vol. 36(4), pages 519-529.
    31. Najah Attig & Sadok El Ghoul & Omrane Guedhami & Jungwon Suh, 2013. "Corporate Social Responsibility and Credit Ratings," Journal of Business Ethics, Springer, vol. 117(4), pages 679-694, November.
    32. Sanjeev Bhojraj & Partha Sengupta, 2003. "Effect of Corporate Governance on Bond Ratings and Yields: The Role of Institutional Investors and Outside Directors," The Journal of Business, University of Chicago Press, vol. 76(3), pages 455-476, July.
    33. Hadiye Aslan & Praveen Kumar, 2012. "Strategic Ownership Structure and the Cost of Debt," The Review of Financial Studies, Society for Financial Studies, vol. 25(7), pages 2257-2299.
    34. Frank J. Fabozzi & Peck Wah Ng & Diana E. Tunaru, 2021. "The impact of corporate social responsibility on corporate financial performance and credit ratings in Japan," Journal of Asset Management, Palgrave Macmillan, vol. 22(2), pages 79-95, March.
    35. 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).
    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. Narula, Radhika & Rao, Purnima & Kumar, Satish & Matta, Rahul, 2024. "ESG scores and firm performance- evidence from emerging market," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 1170-1184.
    2. Witness Siwela & Collins C. Ngwakwe, 2024. "Effect of Corporate Environmental Performance on Banks’ Loan Pricing," International Journal of Economics and Financial Issues, Econjournals, vol. 14(3), pages 178-191, May.
    3. Kudryashov, Alexander, 2023. "ESG Transformation: A Roadmap for Russia’s Sustainable Development /– Tallinn : OPEN EUROPEAN ACADEMY OF PUBLIC SCIENCES OÜ, 2023," OSF Preprints 6j8ux, Center for Open Science.
    4. Shi, Dinghao & Li, Zhiqiang & Huang, Yan & Tan, Haoyu & Ling, Yixin & Liu, Yunuo & Tu, Yongqian, 2024. "Market competition and ESG performance-based on the mediating role of board independence," International Review of Financial Analysis, Elsevier, vol. 96(PA).
    5. Kudryashov, Alexander, 2023. "ESG Transformation: A Roadmap for Russia’s Sustainable Development /– Tallinn : OPEN EUROPEAN ACADEMY OF PUBLIC SCIENCES OÜ, 2023," OSF Preprints 6j8ux_v1, Center for Open Science.
    6. 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).
    7. Qiao, Penghua & Liu, Siting & Fung, Hung-Gay & Wang, Chen, 2024. "Corporate green innovation in a digital economy," International Review of Economics & Finance, Elsevier, vol. 92(C), pages 870-883.
    8. Zhang, Han & Li, Yuan & Xiao, Chenlei & Wang, Xiaoyan, 2024. "Can the deregulation of market access reduce the cost of corporate debt financing: A quasinatural experiment based on the “negative list for market access” pilot project," International Review of Financial Analysis, Elsevier, vol. 91(C).
    9. Wang, Haijun & Jiao, Shuaipeng & Ge, Chen & Sun, Guanglin, 2024. "Corporate ESG rating divergence and excess stock returns," Energy Economics, Elsevier, vol. 129(C).
    10. Vilija Aleknevièiene & Sandra Stralkute, 2023. "Impact of corporate social responsibility on cost of debt in Scandinavian public companies," Oeconomia Copernicana, Institute of Economic Research, vol. 14(2), pages 585-608, June.
    11. Peng, Qian & Xie, Yang, 2024. "ESG greenwashing and corporate debt financing costs," Finance Research Letters, Elsevier, vol. 69(PA).
    12. Li, WeiWei & Padmanabhan, Prasad & Huang, Chia-Hsing, 2024. "ESG and debt structure: Is the nature of this relationship nonlinear?," International Review of Financial Analysis, Elsevier, vol. 91(C).
    13. Liu, Xiangqiang & Dai, Jiajie & Dong, Xiaohong & Liu, Jia, 2024. "ESG rating disagreement and analyst forecast quality," International Review of Financial Analysis, Elsevier, vol. 95(PB).
    14. Fiordelisi, Franco & Ricci, Ornella & Santilli, Gianluca, 2023. "Environmental engagement and stock price crash risk: Evidence from the European banking industry," International Review of Financial Analysis, Elsevier, vol. 88(C).
    15. Tao Zhu & Dongjiao Liu & Lequan Zhang, 2025. "Does ESG Performance Help Corporate Deleveraging? Based on an Analysis of Excessive Corporate Debt," Sustainability, MDPI, vol. 17(3), pages 1-22, February.
    16. Caterina Lucarelli & Sabrina Severini, 2024. "Anatomy of the chimera: Environmental, Social, and Governance ratings beyond the myth," Business Strategy and the Environment, Wiley Blackwell, vol. 33(5), pages 4198-4217, July.
    17. Jiajia Liu & Zhenzhen Ge & Yahan Wang, 2024. "Role of environmental, social, and governance rating data in predicting financial risk and risk management," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(1), pages 260-273, January.
    18. Thamir Al Barrak & Kaouther Chebbi & Abdullah A. Aljughaiman & Mohammed Albarrak, 2023. "Exploring the Interplay between Sustainability and Debt Costs in an Emerging Market: Does Financial Distress Matter?," Sustainability, MDPI, vol. 15(12), pages 1-19, June.
    19. Jin Wang & Zihan Hong & Hai Long, 2023. "Digital Transformation Empowers ESG Performance in the Manufacturing Industry: From ESG to DESG," SAGE Open, , vol. 13(4), pages 21582440231, October.
    20. Zhao, Xinlu & Zhang, Huixue, 2024. "How does ESG performance determine the level of specific financing in capital structure? New insights from China," International Review of Financial Analysis, Elsevier, vol. 95(PC).
    21. Tu, Kaidi & Guo, Yuanyuan, 2024. "How higher education affects corporate ESG performance: Empirical evidence from Chinese listed companies," Finance Research Letters, Elsevier, vol. 68(C).

    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. Mauricio Villamizar‐Villegas & Freddy A. Pinzon‐Puerto & Maria Alejandra Ruiz‐Sanchez, 2022. "A comprehensive history of regression discontinuity designs: An empirical survey of the last 60 years," Journal of Economic Surveys, Wiley Blackwell, vol. 36(4), pages 1130-1178, September.
    2. Liu, Yukun & Wu, Xi, 2023. "How does shareholder governance affect the cost of borrowing? Evidence from the passage of anti-takeover provisions," Journal of Accounting and Economics, Elsevier, vol. 75(2).
    3. Likai Chen & Georg Keilbar & Liangjun Su & Weining Wang, 2023. "Inference on many jumps in nonparametric panel regression models," Papers 2312.01162, arXiv.org, revised Jan 2025.
    4. 'Agoston Reguly, 2021. "Heterogeneous Treatment Effects in Regression Discontinuity Designs," Papers 2106.11640, arXiv.org, revised Oct 2021.
    5. Lutfi Abdul Razak & Mansor H. Ibrahim & Adam Ng, 2020. "Which Sustainability Dimensions Affect Credit Risk? Evidence from Corporate and Country-Level Measures," JRFM, MDPI, vol. 13(12), pages 1-22, December.
    6. Quaresima Federico & Santolini Raffaella & Fiorillo Fabio, 2020. "Political affiliation in post-parliamentary careers in Italian public enterprises," German Economic Review, De Gruyter, vol. 21(1), pages 35-64, April.
    7. Alain Devalle & Simona Fiandrino & Valter Cantino, 2017. "The Linkage between ESG Performance and Credit Ratings: A Firm-Level Perspective Analysis," International Journal of Business and Management, Canadian Center of Science and Education, vol. 12(9), pages 1-53, August.
    8. Shailer, Greg & Wang, Kun, 2015. "Government ownership and the cost of debt for Chinese listed corporations," Emerging Markets Review, Elsevier, vol. 22(C), pages 1-17.
    9. Marinho Bertanha & Guido W. Imbens, 2020. "External Validity in Fuzzy Regression Discontinuity Designs," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 38(3), pages 593-612, July.
    10. Matias D. Cattaneo & Rocío Titiunik, 2022. "Regression Discontinuity Designs," Annual Review of Economics, Annual Reviews, vol. 14(1), pages 821-851, August.
    11. Fonseka, Mohan & Rajapakse, Theja & Richardson, Grant, 2019. "The effect of environmental information disclosure and energy product type on the cost of debt: Evidence from energy firms in China," Pacific-Basin Finance Journal, Elsevier, vol. 54(C), pages 159-182.
    12. 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).
    13. 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.
    14. Ballester, Laura & González-Urteaga, Ana & Shen, Long, 2024. "Green bond issuance and credit risk: International evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 94(C).
    15. Adam C. Sales & Ben B. Hansen, 2020. "Limitless Regression Discontinuity," Journal of Educational and Behavioral Statistics, , vol. 45(2), pages 143-174, April.
    16. Prakash, Nishith & Rockmore, Marc & Uppal, Yogesh, 2019. "Do criminally accused politicians affect economic outcomes? Evidence from India," Journal of Development Economics, Elsevier, vol. 141(C).
    17. Christelis, Dimitris & Georgarakos, Dimitris & Sanz-de-Galdeano, Anna, 2020. "The impact of health insurance on stockholding: A regression discontinuity approach," Journal of Health Economics, Elsevier, vol. 69(C).
    18. John Wald & Sattar Mansi & Anh Nguyen, 2012. "Golden Parachutes, Incentives, and the Cost of Debt," Working Papers 0008, College of Business, University of Texas at San Antonio.
    19. Christina Korting & Carl Lieberman & Jordan Matsudaira & Zhuan Pei & Yi Shen, 2023. "Visual Inference and Graphical Representation in Regression Discontinuity Designs," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 138(3), pages 1977-2019.
    20. Joaquín Artés & Ignacio Jurado, 2018. "Government fragmentation and fiscal deficits: a regression discontinuity approach," Public Choice, Springer, vol. 175(3), pages 367-391, June.

    More about this item

    Keywords

    Corporate social performance; Cost of debt; CSR; ESG; Governance; Green bond; Leverage; Linear probability model; Sharp regression discontinuity; Sustainable finance;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

    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:eee:finana:v:84:y:2022:i:c:s1057521922003325. 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: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620166 .

    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.