ESG reporting quality and its impact on investment and debt financing decisions: evidence from emerging market firms

Pathompong Kookkaew, Neungruthai Petcharat, Pitan Sanpakdee and Joseph M. Mula

International Journal of Managerial Finance, 2026, vol. 22, issue 2, 330-351

Abstract: PurposeWhile corporate financing requires external funding, high-quality sustainability disclosures can signal transparency and help reduce borrowing costs, particularly in emerging markets where firm motivations vary. This study examines whether environmental, social and governance (ESG) reporting quality contributes to lower debt financing costs and how it informs investment and financing decisions by enhancing investment efficiency in firms with lower debt financing costs.Design/methodology/approachA quantitative approach was employed using panel data of 609 firm-year observations from non-financial firms listed on the Thai Stock Exchange, 2019–2023. We used a Least Squares Dummy Variable regression for the main analysis and a generalized method of moments approach for robustness checks.FindingsWe find that high-quality ESG reports are positively associated with lower costs of debt financing. ESG reporting quality positively strengthens the association between lower costs of debt financing and investment efficiency. Both overinvestment and underinvestment are mitigated in firms with lower debt financing costs and high-quality ESG disclosures.Practical implicationsOur results could make managers aware of integrating ESG considerations into a firm's strategies for improving financing and investment decisions. Strengthening high-quality ESG reporting can potentially enhance more effective investment and financing outcomes.Social implicationsHigh-quality ESG disclosures can serve as a credible signal of investment quality in debt markets.Originality/valueThis study, among empirical studies on ESG and the cost of debt, provides evidence that high-quality ESG disclosures could improve investment efficiency in firms, leading to lower debt financing costs.

Keywords: ESG reporting quality; Debt financing costs; Information asymmetry; Investment efficiency; Overinvestment; Underinvestment (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijmfpp:ijmf-06-2025-0327

DOI: 10.1108/IJMF-06-2025-0327

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