Abstract
| Original language | English |
|---|---|
| Article number | 102097 |
| Pages (from-to) | (In-press) |
| Journal | Critical Perspectives on Accounting |
| Volume | (In-press) |
| Early online date | 7 Aug 2019 |
| DOIs | |
| Publication status | E-pub ahead of print - 7 Aug 2019 |
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Keywords
- ESG performance
- ESG disclosure
- The cost of debt
- Credit ratings
- EU
Cite this
ESG practices and the cost of debt : Evidence from EU countries. / Eliwa, Yasser; Aboud, Ahmed; Saleh, Ahmed.
In: Critical Perspectives on Accounting, Vol. (In-press), 102097, 07.08.2019, p. (In-press).Research output: Contribution to journal › Article
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TY - JOUR
T1 - ESG practices and the cost of debt
T2 - Evidence from EU countries
AU - Eliwa, Yasser
AU - Aboud, Ahmed
AU - Saleh, Ahmed
PY - 2019/8/7
Y1 - 2019/8/7
N2 - Using legitimacy and institutional theories, this study investigates whether lending institutions reward firms in 15 EU countries for their environmental, social and governance (ESG) performance and disclosure in terms of lowering their cost of debt capital. Our study distinguishes between ESG performance that is used to indicate an effective commitment to ESG strategies, and ESG disclosure that represents an effort to construct an image of commitment designed to positively influence stakeholders’ perceptions. Supporting a version of legitimacy theory, we find that lending institutions value both ESG performance and disclosure and integrate ESG information in their credit decisions – in that firms with stronger ESG performance have a lower cost of debt, and ESG disclosure has an equal impact on the cost of debt as ESG performance. Although these findings suggest that the market (in context) can engender more desirable social outcomes by rewarding ESG practices, it fails to distinguish between ESG performance and disclosure (which may be contrasted as the more substantive and the more symbolic). Moreover, our results also reflect upon the importance of the role that civil society and the state play in addressing and exploring the limitations of free-market regimes. Specifically, we provide evidence that the impact of ESG performance and disclosure on the cost of debt is more dominant in the stakeholder-oriented countries (where the community is more prevalent). Our main findings are robust to a battery of sensitivity tests, including an alternative measure of the cost of debt, model specifications, and different approaches to address endogeneity. We acknowledge limitations in our research method but point nevertheless to its value in supporting a critical perspective and make suggestions for future research.
AB - Using legitimacy and institutional theories, this study investigates whether lending institutions reward firms in 15 EU countries for their environmental, social and governance (ESG) performance and disclosure in terms of lowering their cost of debt capital. Our study distinguishes between ESG performance that is used to indicate an effective commitment to ESG strategies, and ESG disclosure that represents an effort to construct an image of commitment designed to positively influence stakeholders’ perceptions. Supporting a version of legitimacy theory, we find that lending institutions value both ESG performance and disclosure and integrate ESG information in their credit decisions – in that firms with stronger ESG performance have a lower cost of debt, and ESG disclosure has an equal impact on the cost of debt as ESG performance. Although these findings suggest that the market (in context) can engender more desirable social outcomes by rewarding ESG practices, it fails to distinguish between ESG performance and disclosure (which may be contrasted as the more substantive and the more symbolic). Moreover, our results also reflect upon the importance of the role that civil society and the state play in addressing and exploring the limitations of free-market regimes. Specifically, we provide evidence that the impact of ESG performance and disclosure on the cost of debt is more dominant in the stakeholder-oriented countries (where the community is more prevalent). Our main findings are robust to a battery of sensitivity tests, including an alternative measure of the cost of debt, model specifications, and different approaches to address endogeneity. We acknowledge limitations in our research method but point nevertheless to its value in supporting a critical perspective and make suggestions for future research.
KW - ESG performance
KW - ESG disclosure
KW - The cost of debt
KW - Credit ratings
KW - EU
U2 - 10.1016/j.cpa.2019.102097
DO - 10.1016/j.cpa.2019.102097
M3 - Article
VL - (In-press)
SP - (In-press)
JO - Critical Perspectives on Accounting
JF - Critical Perspectives on Accounting
SN - 1045-2354
M1 - 102097
ER -