Capturing determinants of bond default risks has aroused heated discussions ever since the "rigid payment" system collapsed in China. Within this context; this paper aims to clarify the relation between an issuer's environmental; social; and corporate (ESG) performance and its bond default rate. We developed an ESG factors-embedded Logistic Regression model to empirically examine Chinese default bonds and outstanding industrial bonds from 2014 to 2019. Results indicate that the bond default rate is positively correlated with the company's energy consumption and negatively correlated with its attention to social responsibilities; and corporate governance; in addition to its financial performances. In conclusion; to fully take ESG factors into consideration during the decision-making process and daily operations might improve stability and credibility of corporations in modern Chinese national context. Sustainability 2020, 12, 2954 2 of 12 them [6][7][8]. With the gradual pace of the global popularization of the ESG framework, scholars are now more aware of the impact of ESG performance on corporate financial behavior.Relevant research and empirical results have been mainly from American data. From the environmental perspective, studies noted that better environmental risk management correlates with lower capital cost, since it might result in a lower beta of the corporation, higher resource utilization, and favorable tax benefits [9,10]. Chava, on the other hand, conducted empirical research to provide concrete evidences that investors in the capital market do really value the borrower's environmental externalities from specific aspects, including environmental concerns and strengths, waste emission, and actions in pollution prevention [11]. To be more specific, debtholders are more cautious about the corporation's environmental performance if the corporation faces higher environmental risks, which might lead to bankruptcy risks [12].Social responsibility, which can be perceived as an investment in fostering trust between the company and stakeholders, is also crucial in guaranteeing stable or satisfying financial revenue and lower business risks. Lins et al. pointed out that firms that have a stronger sense of corporate social responsibility (CSR) have higher stock returns as well as better financial performance during economic crises [13]. In other words, investments in CSR might provide a buffer for the company during business downswings. From the perspective of capital cost, Ghoul et al. examined the effect of CSR on the cost of equity for US firms and found that firms with better CSR scores enjoy lower equity cost while firms which participate in tobacco and nuclear power production bear higher costs [14]. Researchers concluded that corporate bond yield spreads are in correlation with CSR performance as well, since high-CSR performance corporations are generally granted higher credit ratings during issuance [15][16][17]. For bank loans, similar conclusions have been drawn that corporations with worse CSR perfo...
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