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The impact of environmental, social and corporate governance responsibility on the cost of short-and long-term debt

Author

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  • Ratajczak Piotr

    (Poznań University of Economics and Business, Institute of Accounting and Finance Management, Department of Controlling, Financial Analysis and Valuation, al. Niepodległości 10, 61-875 Poznań, Poland)

  • Mikołajewicz Grzegorz

    (Poznań University of Economics and Business, Institute of Accounting and Finance Management, Department of Controlling, Financial Analysis and Valuation, al. Niepodległości 10, 61-875 Poznań, Poland)

Abstract

The aim of the paper is to examine the impact of environmental, social and corporate governance (ESG) responsibility on the short- and long-term cost of debt. Linear regression was applied to a unique dataset on CSR and cost of debt for 300 companies recognized in 2017 by Corporate Knights as the most sustainable companies in the world. The question about the link between CSR and cost of debt is important as there is still ongoing debate as to whether business should undertake activities in the field of CSR—managers and other stakeholders are still unsure of the outcomes. The findings show that the involvement in environmental issues decreases the cost of long-term debt whereas the involvement in social issues brings benefits to short- and long-term debt. Surprisingly the greater the involvement in corporate governance, the higher the cost of debt in all time horizons. Managers should expect a lower cost of debt from environmental and social activities mostly in the long run. Corporate governance expenditures may in turn be seen as a waste of company resources, cost of forgone opportunities, or—optionally—as an over-investment. The main novelty is the breakdown of CSR into three dimensions while examining various term structures of corporate debt.

Suggested Citation

  • Ratajczak Piotr & Mikołajewicz Grzegorz, 2021. "The impact of environmental, social and corporate governance responsibility on the cost of short-and long-term debt," Economics and Business Review, Sciendo, vol. 7(2), pages 74-96, June.
    • Handle: RePEc:vrs:ecobur:v:7:y:2021:i:2:p:74-96:n:1
    DOI: 10.18559/ebr.2021.2.6
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    References listed on IDEAS

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    More about this item

    Keywords

    CSR; ESG; sustainability; cost of debt; short-term debt; long-term debt;
    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
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • 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

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