Does ESG Disclosure Affect Corporate-Bond Credit Spreads? Evidence from China

Abstract

With the exponential development of an ecological and sustainable economy and society, the concept and practice of environmental, social, and governance (ESG) investments are being popularized in the capital market of China. ESG disclosure is an important supplement to financial disclosure and plays an increasingly significant role in asset pricing. In this paper, we selected corporate bond data in China’s secondary bond market from 2015 to 2020, and introduced the Nelson–Siegel model to study the influence of ESG disclosure on corporate bond credit spreads in the secondary market. This model passed robustness tests when we used alternative data fitted by the modified Nelson–Siegel model. Results show that ESG disclosure significantly reduces credit spreads on corporate bonds in the secondary market. State ownership and industry play significant roles in moderating the impact of ESG disclosure on corporate bond credit spreads. Specifically, the ESG disclosure of non-state-owned companies and companies in non-high-pollution and -energy-consumption industries has a greater impact on reducing corporate bond credit spreads. Therefore, we urge regulatory departments to establish a sound ESG disclosure evaluation system, and the issue companies to improve the quality of their ESG disclosure, especially non-state-owned companies, and those in non-high-pollution and -energy-consumption industries. Corporate bond investors would benefit from integrating ESG information into their investment decision-making process.

Do ESG scores have incremental information value on the primary bond market?——evidence from China

“…On the one hand, ESG scores provided investors with complete risk information (Zopounidis et al, 2020;Yang et al, 2021). ESG scores as critical non-financial information can not only reflect the importance the company attaches to environmental performance, social responsibility and corporate governance in the development process, but also reflect the practical development level of the three aspects.…”

“…We used the 2SLS procedure to alleviate the endogeneity problem. Referring to prior studies (Lin et al, 2012;Liu et al, 2019;Yang et al, 2021), our paper selected the mean values of the ESG scores in the same industry and year as instrumental variables, and carried out the 2SLS procedure. The results indicate that the coefficient of Scores in Table 5 PanelA is -0.093 and significant.…”

The Relationship Between ESG Information Disclosure Level and Enterprise Value: Empirical Evidence from Chinese Listed Companies

“…However, some studies believe that there is no or negative correlation between ESG information disclosure and corporate value. From a geographical perspective, studies on European and American markets confirm the positive impact of ESG disclosure, but studies on emerging markets (such as southeast Asian markets) are inconclusive (Yang Yue xiang et al, 2021) 12 . As China's ESG market is still in its infancy and the benefits brought by ESG disclosure are prominent, this paper proposes the first research hypothesis: H1: The improvement of ESG information disclosure can improve enterprise value.…”

“…As the pillar of national economy, state-owned enterprises enjoy more preferential policies and greater credit guarantee, so the default risk and bankruptcy risk of state-owned enterprises are less than that of non-state-owned enterprises. On the other hand, non-state-owned enterprises rely more on information disclosure to send positive signals to the outside world to improve their competitiveness in the capital market (Yang Yue xiang et al, 2021) 12 . Therefore, we believe that the level of information disclosure of ESG is more important for non-state-owned enterprises, and its promotion effect on enterprise value is stronger.…”

Do Green Finance Policies Foster Environmental, Social, and Governance Performance of Corporate?

“…Under the traditional financial framework, there is a contradiction between the corporate ESG and the profit maximization goal [ 7 ]. Enterprises that do not undertake or rarely undertake ESG may achieve better market performance [ 8 , 9 ]. Due to the lack of assessment of the enterprise’s environmental level and supervision of the investment flow, the advantages of green enterprises in the traditional credit market are not obvious.…”