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Michael Ryf
- 24 November 2023
- WORKING PAPER SERIES - No. 2878Details
- Abstract
- We study how institutional investors in corporate debt markets respond to ESG-related concerns. Exploiting an exogenous, methodology-driven ESG rating change, we show that ESG downgraded firms face higher loan spreads than non-downgraded peers in the secondary loan market. This increase is not explained by changes in firms’ fundamental credit risk but reflects an excess ESG premium demanded by debt investors. ESG-conscious lenders are also more likely to sell downgraded loans. Finally, the effects extend to the primary loan market, where downgraded firms face higher borrowing costs, highlighting that ESG ratings influence firms’ cost of debt beyond underlying credit fundamentals.
- JEL Code
- E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
G20 : Financial Economics→Financial Institutions and Services→General
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
G24 : Financial Economics→Financial Institutions and Services→Investment Banking, Venture Capital, Brokerage, Ratings and Ratings Agencies - Network
- ECB Lamfalussy Fellowship Programme