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Sovereign bond yield spreads and sustainability: An empirical analysis of OECD countries

Gunther Capelle-Blancard (), Patricia Crifo, Marc-Arthur Diaye, Rim Oueghlissi and Bert Scholtens ()

Journal of Banking & Finance, 2019, vol. 98, issue C, 156-169

Abstract: We study whether and how a country's environmental, social, and governance (ESG) performance relates to its sovereign borrowing costs in international capital markets. We hypothesize that good ESG performance plays an economic role: It signals a country's commitment to sustainability and long-term orientation and is a buffer against negative shocks, leading to lower sovereign bond yield spreads. Using a sample of 20 OECD countries over the period 1996–2012, we show that countries with good ESG performance are associated with lower default risk and lower sovereign bond yield spreads. Moreover, we show that the social and governance dimensions have a significant negative association with sovereign bond yield spreads, whereas the environmental dimension does not.

Keywords: ESG performance; Sovereign bonds; Sustainability; Yield spreads (search for similar items in EconPapers)
JEL-codes: G11 F34 (search for similar items in EconPapers)
Date: 2019
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Related works:
Working Paper: Sovereign bond yield spreads and sustainability: An empirical analysis of OECD countries (2019)
Working Paper: Sovereign bond yield spreads and sustainability: An empirical analysis of OECD countries (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:98:y:2019:i:c:p:156-169

DOI: 10.1016/j.jbankfin.2018.11.011

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