Determinants of corporate credit ratings: Does ESG matter?

Lachlan Michalski and Rand Kwong Yew Low

International Review of Financial Analysis, 2024, vol. 94, issue C

Abstract: We perform an empirical evaluation of fourteen multinomial classifiers in the prediction of credit ratings on a large dataset consisting of macroeconomic, firm-level financial, and environmental, social, and governance (ESG) variables. Random forests and extremely randomized trees exhibit the highest predictive power for US and global firms. We show that environmental and social responsibility variables are important determinants for the credit ratings, specifically measures of environmental innovation, resource use, emissions, corporate social responsibility, and workforce determinants. The influence of ESG variables become more pronounced following the financial crisis of 2007–2009, and are important across both investment-grade and speculative-grade classes.

Keywords: Corporate credit ratings; ESG; Statistical learning; SHAP (search for similar items in EconPapers)
JEL-codes: C52 G30 Q56 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:94:y:2024:i:c:s1057521924001601

DOI: 10.1016/j.irfa.2024.103228

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