ESG practices and the cost of debt: Evidence from EU countries

Yasser Eliwa, Ahmed Aboud, Ahmed Saleh

Research output: Contribution to journalArticlepeer-review

46 Citations (Scopus)
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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.
Original languageEnglish
Article number102097
JournalCritical Perspectives on Accounting
Early online date7 Aug 2019
Publication statusPublished - Sep 2021

Bibliographical note

NOTICE: this is the author’s version of a work that was accepted for publication in Critical Perspectives on Accounting. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Critical Perspectives on Accounting, (2019)
DOI: 10.1016/

© 2019, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International


  • ESG performance
  • ESG disclosure
  • The cost of debt
  • Credit ratings
  • EU

ASJC Scopus subject areas

  • Information Systems and Management
  • Accounting
  • Finance
  • Sociology and Political Science


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