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How does corporate ESG performance affect bond credit spreads: Empirical evidence from China

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  • Lian, Yonghui
  • Ye, Tao
  • Zhang, Yiyang
  • Zhang, Lin

Abstract

In recent years, as the concept of sustainable development has grown in popularity, ESG has attracted widespread interest from people of all backgrounds. This paper empirically investigates the impact of corporate ESG performance on bond credit spreads using a sample of 988 bonds issued by 443 A-share listed companies from the first quarter of 2009 to the fourth quarter of 2020. Results indicate that bond credit spreads are lower for listed companies with higher ESG performance. Good ESG performance decreases bond credit spreads by decreasing corporate financial risk, enhancing corporate transparency, and decreasing debt agency costs. The effect of ESG performance on bond credit spreads is more pronounced for non-state enterprises, enterprises in poor macroeconomic environments, and enterprises in regions with a higher degree of marketization. This study provides evidence for the positive economic consequences of ESG performance from the perspective of bond financing, with implications for firms to improve ESG performance and bond investors to optimize investment decisions.

Suggested Citation

  • Lian, Yonghui & Ye, Tao & Zhang, Yiyang & Zhang, Lin, 2023. "How does corporate ESG performance affect bond credit spreads: Empirical evidence from China," International Review of Economics & Finance, Elsevier, vol. 85(C), pages 352-371.
    • Handle: RePEc:eee:reveco:v:85:y:2023:i:c:p:352-371
    DOI: 10.1016/j.iref.2023.01.024
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    4. Chai Bin‐Feng & Sultan Sikandar Mirza & Tanveer Ahsan & Muhammad Azeem Qureshi, 2024. "How uncertainty can determine corporate ESG performance?," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(3), pages 2290-2310, May.
    5. Xu, Xiaoying & Jin, Mei & Gong, Xinshu, 2024. "Local environmental goal constraint intensity and corporate ESG performance: An empirical observation based on China," Finance Research Letters, Elsevier, vol. 62(PB).
    6. Kunming Li & Linxing Huang & Jinshan Zhang & Zhencheng Huang & Liting Fang, 2023. "Can ESG Performance Alleviate the Constraints of Green Financing for Chinese Enterprises: Empirical Evidence from China’s A-Share Manufacturing Companies," Sustainability, MDPI, vol. 15(14), pages 1-24, July.
    7. Tian, Zengrui & Zhu, Bingsheng & Lu, Yuzhong, 2023. "The governance of non-state shareholders and corporate ESG: Empirical evidence from China," Finance Research Letters, Elsevier, vol. 56(C).
    8. Yang, Dan & Zhao, Zhiyong & Wang, Liangliang, 2024. "Is ESG reporting informative to debtholders?— Evidence from a quasi-experiment in China," Finance Research Letters, Elsevier, vol. 62(PA).
    9. Liyuan Meng & Yuchen Zhang, 2023. "Impact of Tax Administration on ESG Performance—A Quasi-Natural Experiment Based on China’s Golden Tax Project III," Sustainability, MDPI, vol. 15(14), pages 1-23, July.
    10. Yu, Haiyan & Su, Tao, 2024. "ESG performance and corporate solvency," Finance Research Letters, Elsevier, vol. 59(C).
    11. Wenbing Luo & Ziyan Tian & Xusheng Fang & Mingjun Deng, 2024. "Can good ESG performance reduce stock price crash risk? Evidence from Chinese listed companies," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(3), pages 1469-1492, May.
    12. Ji, Qiang & Nie, Song, 2024. "How does local government fiscal pressure affect corporate ESG performance?," Finance Research Letters, Elsevier, vol. 64(C).
    13. Chen, Chaofan & Li, Wen-Bo & Zhang, Heng, 2024. "How do property rights affect corporate ESG performance? The moderating effect of green innovation efficiency," Finance Research Letters, Elsevier, vol. 64(C).
    14. Yadu Zhang & Yiteng Zhang & Zuoren Sun, 2023. "The Impact of Carbon Emission Trading Policy on Enterprise ESG Performance: Evidence from China," Sustainability, MDPI, vol. 15(10), pages 1-27, May.

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