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Credit default swaps and corporate ESG performance

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  • Zhao, Ran
  • Zhu, Lu

Abstract

This study finds that credit default swap (CDS) trading positively affects a firm's environmental, social, and governance (ESG) performance. This effect is more prominent in ESG strengths than ESG concerns. The proposed empirical connection remains valid across endogeneity-controlling methodologies, model specifications, and ESG performance measures. The effect is stronger for firms with stronger bank relationships, higher debt dependence, and more restrictive covenants. Furthermore, improvement in ESG performance is more pronounced for firms with more free cash flow, lower institutional ownership, and higher financial constraints. Our findings reveal the real effects of CDS trading on firm ESG performance.

Suggested Citation

  • Zhao, Ran & Zhu, Lu, 2024. "Credit default swaps and corporate ESG performance," Journal of Banking & Finance, Elsevier, vol. 159(C).
    • Handle: RePEc:eee:jbfina:v:159:y:2024:i:c:s0378426623002741
    DOI: 10.1016/j.jbankfin.2023.107079
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    1. Han, Wei & Wu, Di, 2024. "ESG ratings, business credit acquisition, and corporate value," International Review of Financial Analysis, Elsevier, vol. 95(PA).

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    More about this item

    Keywords

    Credit default swaps; ESG performance; Debt dependence; Lender Monitoring;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • 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

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