Is ESG a Sideshow? ESG Perceptions, Investment, and Firms' Financing Decisions

Roman Kräussl, Joshua Rauh and Denitsa Stefanova

No 33770, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study the effects of market ESG perceptions, as proxied by ESG ratings, on public firms’ security issuance and asset accumulation decisions. Higher ESG scores are followed by capital structure adjustments, specifically increases in equity issuance and decreases in net debt issuance of similar magnitude. These are driven completely by the “E” component of ESG. There are no effects of ESG assessments on capital expenditures or non-cash asset accumulation, supporting the hypothesis that ESG perceptions are a sideshow for capital investment. To address the endogeneity of firms' decisions to raise equity, we consider industry-wide rating changes and decompose the ESG ratings into an industry- and a firm-specific component. The response to the industry component of equity and debt issuance is highly significant, indicating that our findings are not explained by firms' decisions. As many ratings products use restated or backfilled ratings, our results focus on a point-in-time (PIT) ratings panel that we develop. We document that if using a standard ratings product instead of PIT data, researchers might falsely infer that higher ESG ratings lead to asset accumulation, due in particular to the use of restated ESG scores in standard ratings data products.

JEL-codes: G15 G31 G32 G34 (search for similar items in EconPapers)
Date: 2025-05
New Economics Papers: this item is included in nep-cfn and nep-env
Note: CF
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.nber.org/papers/w33770.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:33770

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w33770

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().