ESG scores and debt costs: Exploring indebtedness, agency costs, and financial system impact

• Type: Article in International Scientific Journal
• Date: 2024

Authors

Carlos Alves (Author) FEP; Meneses, LL (Author) Other

Journal

Title: International Review of Financial Analysis

Vol. 94

ISSN: 1057-5219

Publisher: Elsevier

Indexing

ISI Web of Knowledge - 15 Citations

Scopus - 17 Citations

Other information

Authenticus ID: P-010-8V0

DOI: 10.1016/j.irfa.2024.103240

Abstract (EN): This paper provides evidence that conventional risk measures (Merton Distance to Default, Altman Z-Score, ZScore and Volatility) fail to capture all the relevant information to assess borrower risk. Moreover, the paper shows that the additional information contained in ESG scores has a negative relationship with the cost of debt, and this relationship is economically significant. In addition, companies whose sustainability generates major concerns (i.e., the most indebted companies and those with the highest agency costs) benefit the most from ESG performance. Finally, the paper provides evidence that the return on companies' ESG efforts in terms of the cost of debt is higher in countries with bank-based financial systems, where long-term relationships between lenders and borrowers prevail, than in countries with market-based financial systems.

Language: English

Type (Professor's evaluation): Scientific

No. of pages: 22