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ESG Scores and the Credit Market

Title
ESG Scores and the Credit Market
Author
강형구
Keywords
bond; credit rating; ESG; fixed income; funding cost; information asymmetry
Issue Date
2020-04
Publisher
MDPI
Citation
SUSTAINABILITY, v. 12, no. 8, article no. 3456
Abstract
This study analyzes the relationship between Environmental, Social and Governance (ESG) scores and bond returns using the corporate bond data in Korea during the period of 2010 to 2015. We find that ESG scores include valuable information about the downside risk of firms. This effect is particularly salient for the firms with high information asymmetry such as small firms. Interestingly, of the three ESG criteria, only environmental scores show a significant impact on bond returns when interacted with the firm size, suggesting that high environmental scores lower the cost of debt financing for small firms. Finally, ESG is complementary to credit ratings in assessing credit quality as credit ratings cannot explain away ESG effects in predicting future bond returns. This result suggests that credit rating agencies should either integrate ESG scores into their current rating process or produce separate ESG scores which bond investors integrate with the existing credit ratings by themselves.
URI
https://www.mdpi.com/2071-1050/12/8/3456https://repository.hanyang.ac.kr/handle/20.500.11754/165729
ISSN
2071-1050
DOI
10.3390/su12083456
Appears in Collections:
GRADUATE SCHOOL OF BUSINESS[S](경영전문대학원) > ETC
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