Whether and How ESG Lower Debt Costs in China
DOI:
https://doi.org/10.54097/zbhn6130Keywords:
ESG, Debt Cost, Emerging Economies, China.Abstract
As environmental, social, and governance (ESG) practices develop in emerging markets, analysing their connection with financial performance has become increasingly important for informing policy tailored to their unique institutional structures and investment frameworks. The study demonstrates a strong link between ESG performance and corporate debt costs within China’s hybrid institutional environment, considering the ‘dual carbon goal’ and ESG assessment. By analysing 4,811 A-share firm observations (2013–2023) using fixed-effects models and instrumental variables, some findings can be summarized: (1) Causal Effect: A one-unit increase in ESG lowers debt costs by 1.3% (β = -0.013, p < 0.001) after addressing endogeneity, which is 13 times greater than the original estimates. (2) Mechanism: Reputation and risk serve as mediators, confirming that ESG enhances recovery value through stakeholder goodwill. Despite contrasting global evidence, these findings add to the empirical evidence for China by revealing how ESG drives debt reduction. As a result, the study recommends ESG policies that address institutional gaps and bolster reputation to maximise financing benefits.
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