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Is ESG a Sideshow? ESG Perceptions, Investment, and Firms’ Financing Decisions

Author

Listed:
  • Kräussl, Roman
  • Rauh, Joshua
  • Stefanova, Denitsa

Abstract

We study the effects of market ESG perceptions, as proxied by ESG ratings, on public firms’ security issuance and asset accumulation decisions. As many ratings products use restated or backfilled ratings, we focus on point-in-time (PIT) ratings. Higher ESG scores are associated with increases in equity issuance, and decreases in net debt issuance of similar magnitude, driven completely by the “E†component of ESG. There are no effects of ESG assessments on capital expenditures or non-cash asset accumulation, supporting the hypothesis that ESG perceptions are a sideshow for investment. We document that if using a standard ratings product instead of PIT data, researchers might falsely infer that higher ESG ratings lead to investment and positive asset accumulation, due in particular to the use of ESG scores in standard ratings data products.

Suggested Citation

  • Kräussl, Roman & Rauh, Joshua & Stefanova, Denitsa, 2024. "Is ESG a Sideshow? ESG Perceptions, Investment, and Firms’ Financing Decisions," CEPR Discussion Papers 19282, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:19282
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    More about this item

    Keywords

    Capital structure; Equity issues; Debt issues; ESG ratings;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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