The combined effects of economic policy uncertainty and environmental, social, and governance ratings on leverage
Panagiotis Asimakopoulos,
Stylianos Asimakopoulos and
Xinyu Li
The European Journal of Finance, 2024, vol. 30, issue 7, 673-695
Abstract:
This paper examines the combined effects of Economic Policy Uncertainty (EPU) and Environmental, Social, and Governance (ESG) ratings on the level of leverage and its speed of adjustment (SOA). We find that both the EPU and ESG ratings are negatively associated with leverage when assessed separately. However, when EPU and ESG ratings are combined, we show that ESG ratings mitigate the detrimental impact of EPU on leverage. Our results also indicate that higher EPU levels force firms to increase their speed of adjustment due to tighter financing requirements, while ESG ratings overcome that issue and enable firms to maintain lower SOA. These results are robust to various robustness checks and are mainly driven by environmental and social factors. Our paper contributes to the growing ESG literature by showing that ESG ratings can alleviate the adverse effects of EPU on leverage and SOA.
Date: 2024
References: Add references at CitEc
Citations:
Downloads: (external link)
http://hdl.handle.net/10.1080/1351847X.2022.2150559 (text/html)
Access to full text is restricted to subscribers.
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:taf:eurjfi:v:30:y:2024:i:7:p:673-695
Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/REJF20
DOI: 10.1080/1351847X.2022.2150559
Access Statistics for this article
The European Journal of Finance is currently edited by Chris Adcock
More articles in The European Journal of Finance from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().