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The Cost of ESG Debt: A Stakeholder Perspective

Lundvall, Alex LU and Ahonen, Gabriel LU (2024) NEKN01 20241
Department of Economics
Abstract
During the last two decades, corporate ESG practices have garnered significant attention from the global community. The development of responsible business practices in association with sustainability and the integration of stakeholders has become an important topic for firms reputation, their debt financing cost and long-term success. Drawing upon the stakeholder theory, where a firm's success is directly correlated with the relationship between a firm and its stakeholders, this study examines the impact of corporate stakeholder engagement and ESG activities on the cost of debt for European firms. Using a sample of 1070 firm-year observations from 18 European countries during a 10-year period and applying pooled ordinary least squares... (More)
During the last two decades, corporate ESG practices have garnered significant attention from the global community. The development of responsible business practices in association with sustainability and the integration of stakeholders has become an important topic for firms reputation, their debt financing cost and long-term success. Drawing upon the stakeholder theory, where a firm's success is directly correlated with the relationship between a firm and its stakeholders, this study examines the impact of corporate stakeholder engagement and ESG activities on the cost of debt for European firms. Using a sample of 1070 firm-year observations from 18 European countries during a 10-year period and applying pooled ordinary least squares regressions, we find that higher ESG scores and effective stakeholder engagement reduces a firm's cost of debt. Our results indicate that firms which actively involve stakeholders and maintain strong ESG practices benefit from lower debt financing costs where the combined effect of higher ESG scores and better stakeholder engagement further strengthened this result. These findings highlight the importance of integrating stakeholders into ESG strategies to reduce information asymmetry and enhance corporate transparency, ultimately lowering the cost of debt. (Less)
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author
Lundvall, Alex LU and Ahonen, Gabriel LU
supervisor
organization
course
NEKN01 20241
year
type
H1 - Master's Degree (One Year)
subject
keywords
Cost of Debt, ESG, Stakeholder Engagement, Bonds, Pooled Ordinary Least Squares
language
English
id
9162750
date added to LUP
2024-10-01 13:07:50
date last changed
2024-10-01 13:07:50
@misc{9162750,
  abstract     = {{During the last two decades, corporate ESG practices have garnered significant attention from the global community. The development of responsible business practices in association with sustainability and the integration of stakeholders has become an important topic for firms reputation, their debt financing cost and long-term success. Drawing upon the stakeholder theory, where a firm's success is directly correlated with the relationship between a firm and its stakeholders, this study examines the impact of corporate stakeholder engagement and ESG activities on the cost of debt for European firms. Using a sample of 1070 firm-year observations from 18 European countries during a 10-year period and applying pooled ordinary least squares regressions, we find that higher ESG scores and effective stakeholder engagement reduces a firm's cost of debt. Our results indicate that firms which actively involve stakeholders and maintain strong ESG practices benefit from lower debt financing costs where the combined effect of higher ESG scores and better stakeholder engagement further strengthened this result. These findings highlight the importance of integrating stakeholders into ESG strategies to reduce information asymmetry and enhance corporate transparency, ultimately lowering the cost of debt.}},
  author       = {{Lundvall, Alex and Ahonen, Gabriel}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{The Cost of ESG Debt: A Stakeholder Perspective}},
  year         = {{2024}},
}