The aim of this study was to examine the impact of environmental, social, and governance (ESG) measures on credit ratings given to non-financial institutions by the largest credit rating agencies according to economic sector divisions. The hypotheses were as follows: a strong negative impact on non-financial institutions’ credit rating changes will result from ESG risk changes, and the reaction of credit rating changes will vary in different sectors. Panel event models were used to verify these hypotheses. The study used data from the Thomson Reuters Database for the period 2010–2020. The analysis was based on the literature on credit rating determinants and on papers and reports on COVID-19, ESG factors, and their impact on credit rating changes. Linear decomposition was used for the analysis. To verify these hypotheses, long-term issuer credit ratings presented by Moody’s and Fitch for European companies listed on these stock exchanges have been used. In the analyses, financial and non-financial factors were also considered. The results suggested that, within the last year, the methodology presented by credit rating agencies has changed, and ESG factors are one of the basic measures that are used to verify credit rating changes, especially those related to the pandemic.
Abstract. The aim of the paper is to identify the fundamental variables driving banks' credit default swaps. Quarterly data from 2004 to 2015 for European and American banks have been used. The analysis has been prepared through static panel data models. The following hypothesis has been put forward: the earnings potential, and economic uncertainty significantly influence credit risk. The independent variables used are CAMELS factors -Capital Adequacy, Asset Quality, Management Quality, Earnings Potential, Liquidity, and Sensitivity to Market Risk. The CDS spreads are most sensitive to the market risk factors whereas capital adequacy, earnings and liquidity indicators have weaker impact.
The aim this study is to analyze the impact of environmental, social, and governance (ESG) measures on energy sector credit ratings. The main hypothesis is as follows: The ESG measures have had a significant impact on energy sector credit ratings during the COVID-19 crisis. The analysis has been conducted by using long-term issuer credit ratings presented by the main credit rating agencies. To verify the hypothesis, quarterly data from financial statements, macroeconomic data, and ESG measures for all companies listed on the stock exchanges from all over the world for the 2000–2021 period were collected. The sector was divided into sub-samples according to the type of sector and the moment of the COVID-19 crisis. It was noticed that a stronger reaction of credit ratings during the COVID-19 crisis on ESG factors, than that before it, was also observed, and confirms the increasing role of ESG measures in the financial market. On the other hand, credit rating agencies take into consideration ESG factors during the first estimation. Later, the mentioned variables lose their importance. This is based on a few reasons. It is still a small sample of entities that publish non-financial statements connected with ESG. Some countries have yet to implement regulations associated with climate risk. The significance of electricity power consumption and CO2 emissions confirms the significance of the mentioned direct or indirect impact of ESG factors. Credit rating agencies are not willing to change credit ratings because usually companies from the energy sector, especially from coal and oil and gas subsectors, are large entities. They sometimes receive financial support from governments. Governments are also stakeholders that create a lower risk of default. In less developed countries, coal is one of the main energy sources, and costs connected with alternative, renewable energy are more expensive. The prepared research also suggests that particular ESG measures have varying significance on credit ratings. Therefore, it can help to analyze and build models by investors. It will not be without significance for estimating the default risk and the cost of the capital. In most cases, the most significant measure is the E factor.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.
customersupport@researchsolutions.com
10624 S. Eastern Ave., Ste. A-614
Henderson, NV 89052, USA
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
Copyright © 2024 scite LLC. All rights reserved.
Made with 💙 for researchers
Part of the Research Solutions Family.