Punish the bad, reward the good? The effect of corporate environmental performance on cost of debt.
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2025-07-03
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en
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Studies looking at the relation between environmental performance and cost of debt mainly focus on the US and Asia, while work for European listed firms is sparse and yields contradictory results. As such, this thesis aims to add to sustainable finance literature by extending the work on European listed firms with regard to the effect of environmental performance on cost of debt, while also zooming in on the specific driving effects behind environmental performance and different firm characteristics. The panel consists of 499 firms that have been listed on the STOXX Europe 600 between 2020-2023. Using pooled OLS, fixed effects, random effects, system GMM and propensity score matching models, the results turn out to be inconsistent. While some models show a significant effect, the models that account for unobservable firm specific characteristics do not. Omitted variable bias seems most likely to be the driver behind these differing results. The findings refute all seven hypotheses as there seems to be no effect of environmental performance on cost of debt. I argue that the absence of a relation between the two is most likely due to the short time span of the data or interest starting to shift away from sustainability.
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Faculteit der Managementwetenschappen