Does ESG performance improve firm creditworthiness?

Masayasu Kanno

Finance Research Letters, 2023, vol. 55, issue PA

Abstract: This study examines whether ESG performance improves a firm’s creditworthiness. To this end, we develop two methodologies for logistic regression with or without two-stage least squares for selecting default risk factors pertaining to Japanese firms given their ESG scores. The results show that ESG performance contributes more to the prediction of a firm’s default risk for longer risk horizons. Notably, ESG-related activities do not necessarily contribute to a firm’s default risk reduction. Overall, this study provides effective credit risk analysis methodologies for related entities, such as ESG management firms, lenders, and investors.

Keywords: Environmental, Social, and Governance (ESG); Default risk; Logistic regression with two-stage least squares (2SLS) (search for similar items in EconPapers)
JEL-codes: C33 G24 G33 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:55:y:2023:i:pa:s1544612323002660

DOI: 10.1016/j.frl.2023.103894

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