Environmental, Social, and Governance Incidents and Bank Loan Contracts

Ruoyu He, Xueli Chen, Cheng Chen, Jianqiao Zhai and Lixin Cui
Additional contact information
Ruoyu He: Renmin Business School, Renmin University of China, Beijing 100872, China
Xueli Chen: Institute of Journalism and Communication, Chinese Academy of Social Sciences, Beijing 100021, China
Cheng Chen: School of Management and Economics, Beijing Institute of Technology, Beijing 100081, China
Jianqiao Zhai: School of Management and Economics, Beijing Institute of Technology, Beijing 100081, China
Lixin Cui: School of Management and Economics, Beijing Institute of Technology, Beijing 100081, China

Sustainability, 2021, vol. 13, issue 4, 1-19

Abstract: We investigated how a borrower’s adverse environmental, social, and governance incidents affect bank loan contracts. Using a sample of 2001 publicly traded US firms during the period from 2007 to 2016, we found that loans initiated after the occurrence of a firm’s environmental, social, or governance-related incident have a significantly higher spread and a lower loan size. Our sample contained firms covered by RepRisk, as RepRisk began tracking firms’ environmental, social, and governance-related incidents in January 2007. Further analysis showed that the influence on loan contracts is more pronounced in younger firms, which verifies that environmental, social, and governance-related incidents have significant influence and higher information asymmetry. In addition, a test of the timing of the environmental, social, and governance-related incidents in a year further strengthened our conclusions. Moreover, the impact of environmental, social, and governance-related incidents on loan contracts was also reflected in other non-monetary items, such as the duration of a loan contract, requests for collateral, and the frequency of covenants, as well as the lender structure. This paper adds to the discussion on the economic effects of environmental, social, and governance-related incidents on bank contracts. More broadly, our results contribute to the public policy discussion on the role banks should play in the transition to a low-carbon and sustainable economy.

Keywords: environmental, social, and governance incidents; bank loan; loan cost; loan size (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://www.mdpi.com/2071-1050/13/4/1885/pdf (application/pdf)
https://www.mdpi.com/2071-1050/13/4/1885/ (text/html)

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:gam:jsusta:v:13:y:2021:i:4:p:1885-:d:496512

Access Statistics for this article

Sustainability is currently edited by Ms. Alexandra Wu

More articles in Sustainability from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().