 Firm ESG Practices and the Terms of Bank LendingMingying Cheng () and
Iftekhar Hasan
A chapter in Sustainable Finance and ESG, 2023, pp 91-124 from Palgrave Macmillan Abstract: Abstract Banks recognize environmental, social, and governance (ESG) risks as relevant factors in loan contracts since a growing number of such concerns threaten financial stability. We trace this literature focusing on interactions between borrowers’ ESG practices and their banking relationships. We analyze underlying theories why banks change their lending terms contingent on borrowers’ ESG profiles followed by exploring the channels through which firms’ ESG activities affect bank lending decisions, including loan interest rates, maturity, and collateral requirements. We also discuss how banks may affect borrowers’ ESG policies and investment via lending relationships. Finally, we provide new empirical evidence to show that banks’ ESG risks become more value-relevant in the capital market over time. We contribute to the literature by investigating the learning process between banks and borrowers, specifically showing that banks do learn by observing the ESG behaviors of responsible borrowers and consequently improve their own ESG scores. Keywords: ESG; Banking; Responsible bank lending (search for similar items in EconPapers) There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:pal:pmschp:978-3-031-24283-0_5 Ordering information: This item can be ordered from DOI: 10.1007/978-3-031-24283-0_5 Access Statistics for this chapter More chapters in Palgrave Macmillan Studies in Banking and Financial Institutions from Palgrave Macmillan |
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