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Credit ratings and corporate ESG behavior

Author

Listed:
  • Lee, Junyong
  • Lee, Kyounghun
  • Oh, Frederick Dongchuhl

Abstract

This study examines the effect of credit rating concerns on corporate environmental, social, and governance (ESG) behavior. We use the plus or minus test on a large sample of ESG scores and S&P credit ratings of U.S. publicly traded firms from 2003 to 2017. We find that firms with credit rating concerns often increase their ESG activities. This finding holds even after we control for various factors affecting ESG practices. Moreover, firms on the boundary between investment- and speculative-grade ratings significantly improve their ESG performance compared to other cases. Finally, we find evidence that the positive effect of credit rating concerns on ESG activities is pronounced during the global financial crisis and then strengthens further. Overall, our study highlights the impact of credit ratings on corporate ESG behavior. (JEL G24, G32, M14)

Suggested Citation

  • Lee, Junyong & Lee, Kyounghun & Oh, Frederick Dongchuhl, 2024. "Credit ratings and corporate ESG behavior," The Quarterly Review of Economics and Finance, Elsevier, vol. 98(C).
    • Handle: RePEc:eee:quaeco:v:98:y:2024:i:c:s1062976924001443
    DOI: 10.1016/j.qref.2024.101938
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    More about this item

    Keywords

    Credit Rating; Environmental; Social; and Governance (ESG); Financial crisis;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • 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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