The role of environmental, social, and governance rating on corporate debt structure

Panagiotis Asimakopoulos, Stylianos Asimakopoulos, Xinyu Li

Research output: Contribution to journalArticlepeer-review

4 Citations (SciVal)


This paper examines the impact of Environmental, Social, and Governance (ESG) rating on a firm’s debt structure. We find that optimal (market and book) leverage ratios and information asymmetry are reduced when firms become ESG rated. More importantly, ESG rated firms redistribute their financing sources from public debt (bonds issuing) to private debt (bank loans). These results are attributed to the incentive of ESG rated firms to avoid debt-overhang and underinvestment issues and to the fact that the ESG rating conveys valuable information to lenders leading to better access towards more internal sources of financing, such as bank loans over debt issuing. We further find that the substitution effect is more pronounced for firms with high financial pressure, low growth opportunities and specialized assets. Finally, these results remain valid under various robustness and endogeneity tests.
Original languageEnglish
Article number102488
JournalJournal of Corporate Finance
Early online date21 Sept 2023
Publication statusPublished - 31 Dec 2023

Bibliographical note

Funding Information:
We would like to thank the editor Evgeny Lyandres and anonymous reviewers for their constructive and valuable comments. We also thank Alex Edmans, Hongyu Shan, Xianmin Liu, as well as the conference and seminar participants at the 8th Annual Conference of the International Association for Applied Econometrics (IAAE), the 1st Sustainable Finance and Governance (SFG) conference, the 11th International Conference of the Financial Engineering and Banking Society (FEBS), and the 56th Annual Conference of the Canadian Economics Association (CEA).


  • Debt structure
  • ESG rating
  • Information asymmetry
  • Leverage ratios
  • Public and private debt

ASJC Scopus subject areas

  • Economics and Econometrics
  • Business and International Management
  • Finance
  • Strategy and Management


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