Do Banks Value Borrowers' Environmental Record? Evidence from Financial Contracts

Chen, I‐Ju; Hasan, Iftekhar; Lin, Chih-Yung; Nguyen, Tra

doi:10.2139/ssrn.3416019

Cited by 1 publication

(2 citation statements)

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“…Khairollahi et al (2016) showed that carbon dioxide reductions decrease a firm’s business risk. Chen et al (2018) found that the future stock volatility is higher for polluting firms. Moreover, they documented that banks demand higher borrowing costs from polluting firms, indicating that banks compensate for potential liability and risk associated with environmental issues.…”

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

“…Environmental performance could also play a significant role in determining the capital structure decision through business risk and cost of debt. A firm’s exposure to reputational, regulatory and litigation risks, as well as, unpredictable environmental liabilities increases business risk and decreases the firm’s ability to meet debt obligations (Bauer and Hann, 2010; Cooper and Uzun, 2015; Du et al , 2017; Chang et al , 2018; Chen et al , 2018). The business and default risks related to environmental performance provide incentives for banks to consider the firms’ environmental profile in the credit appraisal process (Thompson and Cowton, 2004; Chen and Wang, 2012 Chen and Wang,2012; Chava, 2014; Herbohn et al , 2019).…”

Section: Introductionmentioning

confidence: 99%

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The impact of environmental performance on capital structure and firm performance: the case of Turkey

Kalash

2021

SBR

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Purpose The purpose of this study is to investigate the effect of environmental performance on the capital structure and financial performance of Turkish listed firms. Design/methodology/approach This study used data of 49 firms listed on Istanbul Stock Exchange during the period between 2014 and 2019, resulting in 205 firm-year observations. The environmental performance data were drawn from the carbon disclosure project Turkey climate change reports. Ordinary least squares and binary logistic regression models were used to examine whether environmental performance impacts the capital structure and financial performance. Findings The findings of this research revealed that environmental performance significantly positively affects the firm leverage. Findings also showed that environmental performance has a significantly positive impact on return on assets, operating profitability and return on equity, but no significant impact on stock returns. Practical implications Given the increased borrowing costs for Turkish firms after the 2018 currency crisis in Turkey, the findings of this study are very important as they enable managers of Turkish firms to make better decisions related to capital structure and to understand the role of environmental performance in reducing the cost of debt and enhancing financial performance. Originality/value To the author’s knowledge, this research is the first to investigate the effect of environmental performance on capital structure in the Turkish context, and is one of few that explained how environmental performance affects the financial performance of Turkish firms.

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Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%