Sustainable finance: the influence of corporate sustainability performance on capital structure
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2023-07-13
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en
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As a result of dealing with sustainability risks, firms are under pressure to integrate financial activities with environmental and social activities. However, whether or not firms, investors, and financial institutions want to create sustainability value in addition to financial value remains a topic of considerable debate. Firms need capital to finance their operations. This is evaluated by leverage and public debt to total debt. Based on capital structure theories this study suggests that firms are more leveraged when the cost of debt decreases, and firms are better able to attract public debt when agency costs and information asymmetries are reduced. Using a sample of STOXX Europe 600 companies over the period 2011-2021, this study hypothesizes and finds a significant positive relationship between corporate sustainability performance (CSP) and a firm’s leverage and public debt to total debt. This suggests that investors and financial institutions reward sustainability with lower costs of debt and that better CSP reduces agency costs and information asymmetry. The results also show that the relationships between CSP and a firm’s leverage and public debt to total debt differ between sustainability-sensitive industries compared to non-sustainability-sensitive industries, which could be explained by changing firm risk and greenwashing risk.
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Faculteit der Managementwetenschappen