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Golden ratio-based leverage targeting and the ESG performance of US and European listed firms

Author

Listed:
  • Csapi, Vivien
  • Ulbert, József
  • Tóth-Pajor, Ákos

Abstract

Our paper aims to assess whether golden ratio-based leverage targeting is linked to better ESG performance. To answer this research question, we study how ESG performance affects the distance between the leverage targets and the levels defined by the golden ratio and examine the temporal dynamics of leverage in relation to the distance between leverage targets and the golden ratio levels. Our main findings show that when firms in the European manufacturing sector have better ESG performance, they choose to have leverage targets closer to the levels defined by the golden ratio. In this case, firms adjust their book leverage considering the distance between the leverage targets and the golden ratio levels. Our results highlight that prudential sustainability reporting regulation and higher ESG exposure can guide firms toward a more harmonized capital structure.

Suggested Citation

  • Csapi, Vivien & Ulbert, József & Tóth-Pajor, Ákos, 2024. "Golden ratio-based leverage targeting and the ESG performance of US and European listed firms," Research in International Business and Finance, Elsevier, vol. 71(C).
    • Handle: RePEc:eee:riibaf:v:71:y:2024:i:c:s0275531924002629
    DOI: 10.1016/j.ribaf.2024.102469
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    More about this item

    Keywords

    Capital structure; Golden ratio; Target leverage; ESG performance;
    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
    • 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
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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