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

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

doi:10.1007/s10551-020-04621-2

Cited by 31 publications

(9 citation statements)

References 72 publications

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“…Environmental engagement seems to almost pay off in times of upswing, e.g., because stakeholders such as customers accept price markups or reward environmentally sustainable firms through their purchasing behavior. Apart from that, a current study provides evidence that banks value the environmental performance of their borrowers (Chen et al, 2020).…”

Section: Regression Resultsmentioning

confidence: 71%

Corporate Social Performance and the Likelihood of Bankruptcy: Evidence from a Period of Economic Upswing

Habermann

Fischer

2021

J Bus Ethics

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The paper aims to investigate the effects of corporate social performance (CSP) on bankruptcy likelihood in times of economic upswing. This is important because prior related literature focused on data containing times of economic crises. We measure bankruptcy likelihood with the Altman Z score and CSP with Refinitiv ESG scores. By applying static panel data regressions and instrumental variable regressions on a sample of 6696 US-firm-year observations from 2010 to 2019 our main findings are: (i) In contrast to existing research, the level of firms’ CSP seems to have no (positive) effect on the likelihood of bankruptcy during times of economic upswing. (ii) Increasing a firm’s CSP in times of economic upswing leads to a rise in bankruptcy likelihood. We conclude that the positive effects of CSP on stakeholder relationships fail to materialize in flourishing business environments. The costs of increasing CSP, thus, exceed their immediate positive effects and raise bankruptcy likelihood. However, as they reduce financial default risk in subsequent crises, CSP investments can be seen as a balancing measure. Our findings bear implications for scholars, practitioners, and policymakers.

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Section: Regression Resultsmentioning

confidence: 71%

Corporate Social Performance and the Likelihood of Bankruptcy: Evidence from a Period of Economic Upswing

Habermann

Fischer

2021

J Bus Ethics

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“…One possible empirical channel could be through lending if banks with higher ESG scores are those that account more for environmental and social components in their loan origination and pricing policies (see e.g. Chen et al 2020;Zhou et al 2021). It is reasonable to expect that on average such banks will benefit in terms of more stability (i.e.…”

Section: Tests For Disentangled Esg Componentsmentioning

confidence: 99%

“…This evidence could be related to fact that, by differentiating loan spreads between firms more or less exposed to environmental issues (as demonstrated by e.g. Chen et al 2020), banks with higher responsibility could benefit from lower risks (see e.g Zhou et al 2021), especially when the turmoil originates in the credit market.…”

Section: Additional Analyses and Robustness Checksmentioning

confidence: 99%

Do ESG strategies enhance bank stability during financial turmoil? Evidence from Europe

Chiaramonte

Dreassi

Girardone

et al. 2021

The European Journal of Finance

130

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This paper investigates the joint and separate effects of Environmental (E), Social (S), and Governance (G) scores on bank stability. Using a sample of European banks operating in 21 countries over 2005-2017, we find that the total ESG score, as well as its sub-pillars, reduces bank fragility during periods of financial distress. This stabilizing effect holds strongly for banks with higher ESG ratings. These results are confirmed by a differences-in-differences (DID) analysis built around the introduction of the EU 2014 Non-Financial Reporting Directive (NFRD). Our evidence also reveals that, in times of financial turmoil, the longer the duration of ESG disclosures, the greater the benefits on stability. Finally, we show that the ESG-bank stability linkages vary significantly across banks' characteristics and operating environments. Our findings are robust to selection bias and endogeneity concerns. Overall, they support the regulatory effort in requiring an enhanced disclosure of non-financial information.

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“…We incorporate essential governance structure variables in our regression models, including board independence, board size, CEO compensation, CEO duality and a staggered board indicator. These variables have been identified by previous research as important factors to consider in corporate governance (Bebchuk et al, 2009;Chen et al, 2021). Furthermore, building upon research on managerial demographic background, we adopt the approach of Bear et al (2010)…”

Section: Corporate Governance Channelmentioning

confidence: 99%

Corporate pollution and reputational exposure

Chortareas,

Kou,

Ventouri

2024

Financial Market

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We study the empirical association between corporate pollution and reputational exposure using a sample of 745 U.S. firms from 2007 to 2019 and an ordered probit model. Our results reveal an inverse relationship between chemical emissions and reputational exposure rating, after controlling for various firm attributes. We examine the roles of corporate governance structure and the demographic background of the top management team in the transmission process from polluting chemical emissions to reputation. Further, the negative impact of corporate pollution on reputational exposure rating is much stronger in areas where residents are convinced that climate change is happening. We perform several tests and analyses designed to mitigate endogeneity issues and correct sample bias to ensure the robustness of our findings. Finally, our results suggest that the negative effect is stronger for companies with higher information asymmetry, which indicates the importance of information transparency for firms' credibility.

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

Cited by 31 publications

References 72 publications

Corporate Social Performance and the Likelihood of Bankruptcy: Evidence from a Period of Economic Upswing

Corporate Social Performance and the Likelihood of Bankruptcy: Evidence from a Period of Economic Upswing

Do ESG strategies enhance bank stability during financial turmoil? Evidence from Europe

Corporate pollution and reputational exposure

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