ESG Ratings, ESG News Sentiment and Firm Credit Risk Perception

Fangfang Wang, Florina Silaghi, Steven Ongena and Miguel García-Cestona
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Fangfang Wang: Autonomous University of Barcelona
Florina Silaghi: Autonomous University of Barcelona
Miguel García-Cestona: Autonomous University of Barcelona

No 25-24, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We investigate the impact of ESG rating changes and daily ESG news sentiment on firm credit risk. We document a significant increase in CDS spreads following ESG rating downgrades, especially for the social pillar, while we find a muted reaction to ESG upgrades. A similar asymmetrical effect is documented for ESG news. We further show that the adverse effect of ESG downgrades on the CDS market is mitigated in the presence of positive ESG sentiment, a transparent information environment and higher rating disagreement. Lastly, the reaction is stronger for firms with lower creditworthiness, higher bankruptcy probability and tighter financial constraints.

Keywords: ESG ratings; Credit default swaps; Event study; ESG news sentiment (search for similar items in EconPapers)
JEL-codes: G14 G32 M14 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2025-03
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2524

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