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Environmental Risk and Credit Ratings, and the Moderating Effect of Market Competition

Author

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  • Yujin Kim

    (Hana Institute of Finance, Hana Bank, Seoul 04538, Korea)

  • Su-In Kim

    (College of Business Management, Hongik University, Sejong 30016, Korea)

Abstract

This study examines the relationship between environmental risk and corporate bond credit ratings, and the moderating effect of market competition. We focus on Korean firms that are facing increasing risk of environmental crisis after the COVID-19 pandemic. Recently, the Korean government has been controlling businesses while promoting policies to transform the economy into a low-energy, low-carbon economy. We find that a firm’s greenhouse gas emission and energy consumption, which are direct indicators of environmental risk, are negatively associated with bond credit ratings. We also report that the negative effect of environmental risk on credit ratings is stronger in firms with low market competition. This study contributes to prior research by improving the understanding of the effect of environmental risk on credit ratings. In particular, it is significant to examine the effect of environmental risk, measured as direct environmental performance not affected by green washing, on credit rating. Therefore, we shed light on environment-oriented management beyond the determinants of credit ratings, which have been discussed in previous studies. We also suggest that policymakers need to manage market competition in terms of environmental justice, given that market competition has a significant moderating effect on the relationship between environmental risk and credit ratings.

Suggested Citation

  • Yujin Kim & Su-In Kim, 2022. "Environmental Risk and Credit Ratings, and the Moderating Effect of Market Competition," IJERPH, MDPI, vol. 19(9), pages 1-17, April.
    • Handle: RePEc:gam:jijerp:v:19:y:2022:i:9:p:5341-:d:803896
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    Cited by:

    1. Hung-Jung Siao & Sue-Huai Gau & Jen-Hwa Kuo & Ming-Guo Li & Chang-Jung Sun, 2022. "Bibliometric Analysis of Environmental, Social, and Governance Management Research from 2002 to 2021," Sustainability, MDPI, vol. 14(23), pages 1-19, December.
    2. Hyunah Lee & Jaehong Lee, 2022. "Industry Competition, Corporate Governance, and Voluntary Disclosure of Greenhouse Gas Emissions Information: Evidence from South Korea," IJERPH, MDPI, vol. 19(23), pages 1-15, December.
    3. Su-In Kim & Yujin Kim, 2023. "Climate Risk, Stock Crash Risk, and Greenhouse Gas Emission Trading Scheme: Evidence From Korea," SAGE Open, , vol. 13(4), pages 21582440231, November.

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