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ESG-Based Sustainability Performance and its Impact on Cost of Capital: International Evidence from the Energy Sector

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  • Ilker Yilmaz

Abstract

The purpose of this article is to examine the impact of firms’ sustainability performance, measured through their ESG (environmental, social, and governance) scores, on their cost of capital. Using the data of 125 companies from 24 countries for an eleven-year period from 2009 to 2019, we run panel data regressions to find out the impact of ESG scores on two measures of cost of capital: cost of debt, and cost of equity. We run pooled and panel regressions. The results reveal an inverse relationship between cost of capital and overall ESG scores. As a robustness check, we run the analyses according to the generalized method of moments, leading to similar results. For the individual scores of the environmental, social, and governance pillars, the results are mixed. The results imply that companies should adopt a holistic approach and engage in all dimensions of sustainability.

Suggested Citation

  • Ilker Yilmaz, 2022. "ESG-Based Sustainability Performance and its Impact on Cost of Capital: International Evidence from the Energy Sector," International Journal of Applied Economics, Finance and Accounting, Online Academic Press, vol. 12(2), pages 21-30.
    • Handle: RePEc:oap:ijaefa:v:12:y:2022:i:2:p:21-30:id:529
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    Cited by:

    1. Kiran Fatima & Habiba Azam & Fiaz Ahmad Sulehri & Syeda Ambreen Fatima Bukhari & Hafiz Khalique Ur Rehman Virk & Yunjiang Geng & Marc Audi & Muhammad Saleem Ashraf, 2024. "Sustainability Disclosures and Their Influence on Cost of Capital: A Comprehensive Bibliometric Study," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 13(2), pages 799-810.
    2. Inova Fitri Siregar & Tubagus Ismail & Muhammad Taqi & Nurhayati Soleha, 2024. "Influence of ESG on Sustainability Reporting: Mediation Rule of Green Innovation and Investor Sentiment," International Journal of Energy Economics and Policy, Econjournals, vol. 14(1), pages 452-463, January.
    3. Jyoti Dua & Anil Kumar Sharma, 2024. "Corporate Sustainability and Capital Costs: A Panel Evidence from BRICS Countries," Indian Journal of Corporate Governance, , vol. 17(1), pages 77-101, June.
    4. Shengyang Qin & Xinxing Duan & Ahmad Fatehallah Al-hourani & Naif Alsaadi, 2022. "Evaluation of Total Quality Management in Turkish Pharmaceutical Companies: A Case Study," Sustainability, MDPI, vol. 14(16), pages 1-20, August.

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