Extending the benefits of <scp>ESG</scp> disclosure: The effect on the cost of debt financing

Raimo, Nicola; Caragnano, Alessandra; Zito, Marianna; Vitolla, Filippo; Mariani, Massimo

doi:10.1002/csr.2134

Cited by 292 publications

(205 citation statements)

References 88 publications

(151 reference statements)

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“…Additionally, Eliwa et al (2019) examined a sample of companies operating in 15 European countries, concluding that the impact of ESG disclosures has a negative relationship with the cost of debt. Also, Bhuiyan and Nguyen (2019) studied a sample of Australian listed companies and found a negative impact of ESG disclosures on the cost of debt (Raimo et al, 2021). The literature review shows that previous studies analyzed the impact of additional disclosures on the cost of debt.…”

Section: Literature Reviewmentioning

confidence: 99%

See 1 more Smart Citation

The Impact of CSR/ESG on the Cost of Capital: A Case Study of US Companies

Piechocka-Kałużna¹,

Tłuczak²,

Lopatka³

2021

ERSJ

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Purpose:The paper identifies the direction and strength of the relationship between individual ESG elements (and ESG as a whole) and the weighted average cost of capital, the cost of equity, and debt. The research was based on US market company data from the Thomson Reuters Eikon database. Some modifications have been applied to the survey methodology compared to that previously used in the literature, making it possible to present comprehensive and more congruent results. Identifying the direction and strength of the relationship between individual elements of ESG and ESG as a whole and the cost of capital (weighted average, equity, and debt). Design/Methodology/Approach: This paper incorporates an analytical approach based on the results of the original research. Findings: ESG and its components affect the cost of capital (weighted average, equity, and debt) Practical Implication: Disclosure of CSR/ESG practices can improve a company's financial position because it implies the ability to raise capital with lower cost, which, in turn, induces a better financial result. Knowledge of the existence of such exist is essential when most companies have to look for further savings (cost reduction) due to pandemic impediments. Originality/Value: The originality and value of an article are manifested on three levels: 1. There is a paucity of comprehensive empirical research in the literature on the subject; 2. To date, there has been no simultaneous, large sample study of the impact of ESG and its elements on the weighted average cost of capital and on the costs of raising equity and debt separately; 3. To date, there have been no studies on the relationship between the variables mentioned in 2, including a time lag, and here it is assumed that the impact of ESG and its elements on the cost of capital, due to the nature of reporting, may become apparent at the earliest in the next fiscal year.

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Section: Literature Reviewmentioning

confidence: 99%

“…However, it can be observed that financial disclosure alone can no longer meet all the company's information needs. As a result, disclosing non-financial information about company activities, using mainly environmental, social, and sustainability reports, is becoming increasingly important (Raimo et al, 2021).…”

Section: Introductionmentioning

confidence: 99%

The Impact of CSR/ESG on the Cost of Capital: A Case Study of US Companies

Piechocka-Kałużna¹,

Tłuczak²,

Lopatka³

2021

ERSJ

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“…According to signaling theory, corporate disclosure of non-financial information broadens the spectrum of information recipients. Such practices allow companies to increase the plurality of stakeholders, from customers and employees to suppliers and government (Raimo et al, 2021;Vitolla et al, 2020) Nevertheless, managers should seek to balance the positive effects of a lower cost of capital through additional disclosures with the possible disadvantages of scope reporting (Meek et al, 1995).…”

Section: Literature Reviewmentioning

confidence: 99%

“…The literature further highlights that ESG disclosures respond to societal needs (and even public pressure) in this regard (Hahn and Kühnen, 2013;Rahman and Alsayegh, 2021). It is indicated that stakeholders put increasing pressure on companies to prove that they operate sustainably, reduce negative environmental and social impacts, and implement sustainability measures (Eliwa et al, 2019;Manes-Rossi et al, 2020;Raimo et al, 2021).…”

Section: The Impact Of Esg Reporting On the Cost Of Capital: An Example Of Us Healthcare Entities 682mentioning

confidence: 99%

The Impact of CSR/ESG Reporting on the Cost of Capital: An Example of US Healthcare Entities

Piechocka-Kałużna¹,

Tłuczak²,

Lopatka³

2021

ERSJ

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Purpose: Identifying the direction and strength of the relationship between individual elements of ESG and ESG as a whole and the cost of capital (weighted average, equity, and debt) in the healthcare industry. Design/Methodology/Approach: This paper incorporates an analytical approach based on the results of the original research. Findings: According to our conclusions based on empirical studies of the US healthcare industry, ESG and its corporate governance component translate into the weighted average cost of capital and one of its components, i.e., the cost of equity. Practical Implication: The healthcare sector is a critical element of the pandemic-determined economic reality. The possibility of obtaining cheaper capital, e.g., for its development, is therefore of considerable importance. This paper shows that the weighted average cost of capital (WACC) and the cost of equity is significantly affected by ESG and the corporate governance component. About the cost of debt, no such relationships can be established. In our view, the existence of such dependencies (allowing for reducing the cost of capital) is crucial for the managers of companies from this socially important sector. Originality/Value: The article studies on the healthcare industry rarely focus on rationalizing the cost of capital. The literature presenting similar studies (linking the presentation of ESG disclosures with the cost of money), although concerning other industries, also suggests a lack of comprehensive empirical studies on this topic. Therefore, our study reduces this research gap in this context while the research methodology itself is also innovative.

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“…From the perspective of the legitimacy theory, ESG disclosure (ESGD) mitigates firm-specific risks [4], which at least theoretically, should help to reduce their weighted average cost of capital, thereby improving firm performance (FP). Using data from international listed firms belonging to the S&P 1200 Global Index, Raimo, Caragnano, Zito, Vitolla, and Mariani [5] find a negative relation between ESGD and the cost of debt. Similarly, Raimo, de Nuccio, Giakoumelou, Petruzella, and Vitolla [6] evidence a negative relationship between ESGD and the cost of equity capital among international listed firms operating in the food and beverage sector.…”

Section: Introductionmentioning

confidence: 99%

ESG Disclosure in an Emerging Market: An Empirical Analysis of the Influence of Board Characteristics and Ownership Structure

Lavín

Montecinos‐Pearce

2021

Sustainability

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In the context of greater demand for corporate transparency, there is a growing pressure on boards to produce and communicate information to their investors and stakeholders. The current literature on integrated reporting shows that the provision of ESG information is a crucial factor that improves corporate governance by reducing agency problems. This issue is also critical in emerging economies, and particularly among Latin American firms. The concentration, opacity, and lack of evidence about ESG disclosure in less developed financial markets provide a promising environment to study the implications of board heterogeneity and ownership structure on strategic corporate decisions such as the disclosure of ESG indicators in developing economies. Using Tobit panel data models, we study how these factors affect the extent of ESG disclosure by Chilean listed firms. Our main results suggest that a board’s independence and gender diversity positively influence the extent of disclosure of ESG indicators. Our evidence helps firms concerned with strengthening their board’s features, investors that require screening firms’ ESG risk factors, and supports regulators’ decisions on setting norms regarding the extent of disclosure of ESG information by firms.

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Extending the benefits of ESG disclosure: The effect on the cost of debt financing

Cited by 292 publications

References 88 publications

The Impact of CSR/ESG on the Cost of Capital: A Case Study of US Companies

The Impact of CSR/ESG on the Cost of Capital: A Case Study of US Companies

The Impact of CSR/ESG Reporting on the Cost of Capital: An Example of US Healthcare Entities

ESG Disclosure in an Emerging Market: An Empirical Analysis of the Influence of Board Characteristics and Ownership Structure

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