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The Effect of Environmental, Social, and Governance Performance Factors on Firms’ Cost of Debt: International Evidence

Author

Listed:
  • Muhammad Nurul Houqe

    (School of Accountancy, Massey Business School, Massey University, New Zealand)

  • Kamran Ahmed

    (La Trobe Business School, La Trobe University, Melbourne, Australia)

  • Grant Richardson

    (Macquarie Business School, Macquarie University, Sydney, Australia)

Abstract

This study examines the effect of environmental, social, and governance (ESG) performance on firms’ cost of debt (COD). Based on a sample of 18,950 firm-year observations from 41 countries over the period of 2008–2015, we find a significant negative association between aggregate ESG performance and firms’ COD. We also observe a significant negative association between the individual ESG performance factors (E, S, and G) and firms’ COD. In addition, the negative association between aggregate/individual ESG performance and firms’ COD is economically significant, ranging from 16.93% to 21.20% of median COD values. Finally, disclosure of ESG performance, stakeholder orientation, investor protection, control of corruption, and social progress have pronounced effects on the negative association between ESG performance and firms’ COD. Taken together, our results suggest that ESG performance has a significant negative effect on firms’ COD from an international perspective.

Suggested Citation

  • Muhammad Nurul Houqe & Kamran Ahmed & Grant Richardson, 2020. "The Effect of Environmental, Social, and Governance Performance Factors on Firms’ Cost of Debt: International Evidence," The International Journal of Accounting (TIJA), World Scientific Publishing Co. Pte. Ltd., vol. 55(03), pages 1-30, September.
    • Handle: RePEc:wsi:tijaxx:v:55:y:2020:i:03:n:s1094406020500146
    DOI: 10.1142/S1094406020500146
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    Cited by:

    1. Zhe An & Wenlian Gao & Donghui Li & Dezhu Ye, 2022. "Dividend payouts, cash‐flow uncertainty and the role of institutions," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 49(7-8), pages 1356-1390, July.
    2. Ayman Issa & Mohammad A. A. Zaid & Jalal Rajeh Hanaysha, 2022. "Exploring the relationship between female director's profile and sustainability performance: Evidence from the Middle East," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(6), pages 1980-2002, September.
    3. Faruk Bhuiyan & Tarek Rana & Kevin Baird & Rahat Munir, 2023. "Strategic outcome of competitive advantage from corporate sustainability practices: Institutional theory perspective from an emerging economy," Business Strategy and the Environment, Wiley Blackwell, vol. 32(7), pages 4217-4243, November.
    4. Arian, Adam G. & Sands, John, 2024. "Do corporate carbon emissions affect risk and capital costs?," International Review of Economics & Finance, Elsevier, vol. 93(PA), pages 1363-1377.

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