This study investigates the relation between corporate sustainability performance, corporations' litigation provisions and the yield spread of company issued bonds. Results show a significant negative relation between companies' ESG scores and their bond yield spreads. Most of this effect is accounted to the environmental performance of the company. Furthermore, I find support for a paradigm shift in the perception of sustainability performance. Whereas the effect on the yield spread was positive in years before the financial crisis, this relation turned negative subsequently. Besides that, country and industry facilitate a moderating role in the relationship. A strong ESG performance appears to significantly reduce bond spreads in the Mining industry and in more developed countries. Analyzing the relationship between sustainability performance and litigation provisions, I find that the ESG performance tends to reduce corporations' litigations in the years after 2012. Next to that, the social score has a significant positive relationship with litigation provisions. A mediation and moderation analysis of litigation provisions in the context of sustainability performance and yield spreads did not provide any significant findings. Finally, I conduct an event study attempting to find evidence for a possible causal relationship between sustainability performance and the yield spread.
Inhaltsverzeichnis (Table of Contents)
- Introduction
- Literature Review
- Sustainability and Cost of Debt
- Sustainability and Litigation Risk
- Data and Methodology
- Sustainability Performance and Corporate Bond Yield Spreads
- Sustainability Performance and Litigation Provisions
- Mediation Analysis of Litigation Provisions
- Moderation Analysis of Litigation Provisions
- Event study: Volkswagen Scandal & Paris Climate Agreement
- Results
- Descriptive Statistics
- Sustainability Performance and the Corporate Bond Spread
- Moderation Analysis: ESG, Time, Bond Spreads
- Moderation Analysis: ESG, Industries, Bond Spreads
- Moderation Analysis: ESG, Countries, Bond Spreads
- Sustainability Performance and Litigation Provisions
- Moderation Analysis: ESG, Time, Litigation Provisions
- Moderation Analysis: ESG, Industries, Litigation Provisions
- Moderation Analysis: ESG, Countries, Litigation Provisions
- Mediation Analysis: Litigation Provisions
- Moderation Analysis: Litigation Provision
- Event study: Volkswagen Scandal & Paris Climate Agreement
- Discussion and Limitations
- ESG performance and Cost of Debt
- ESG performance and Litigation Provisions
- Mediation and Moderation Analyses of Litigation Provisions
- Limitations
- Conclusion
- References
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This study investigates the relationship between corporate sustainability performance, litigation provisions, and corporate bond spreads. It aims to answer whether and how ESG performance influences bond yield spreads, particularly through the lens of litigation risk. The study also examines the role of other factors like time, industry, and country in moderating this relationship. Furthermore, the study explores the potential causal relationship between sustainability performance and yield spreads using an event study focusing on the Volkswagen scandal and the Paris Climate Agreement.
- The influence of ESG performance on corporate bond yield spreads
- The role of litigation provisions in the relationship between ESG and bond spreads
- Moderating effects of time, industry, and country on the relationship between ESG and bond spreads
- Potential causal relationship between ESG performance and yield spreads
- The importance of sustainability for financial performance
Zusammenfassung der Kapitel (Chapter Summaries)
- Introduction: This chapter sets the stage for the study by highlighting the research question and objectives, which center around the influence of ESG performance on corporate bond yield spreads and the role of litigation provisions. It also discusses the significance of understanding this relationship for both academics and practitioners.
- Literature Review: This chapter provides a review of existing research on the relationship between sustainability performance and financial performance, focusing on the cost of debt and the impact of ESG on litigation risk. It presents mixed findings from previous studies, highlighting the need for further investigation.
- Data and Methodology: This chapter details the data sources and methodology used in the study. It describes the variables, including ESG scores, bond yield spreads, litigation provisions, and other control variables. It also explains the statistical methods employed for analysis, including regression analysis, mediation analysis, moderation analysis, and an event study.
- Results: This chapter presents the findings of the study's analyses, covering the relationship between ESG performance and bond yield spreads, the role of litigation provisions, and the moderating effects of time, industry, and country. It also includes the results of the event study.
- Discussion and Limitations: This chapter discusses the implications of the findings, highlighting potential explanations for the observed relationships and their significance for various stakeholders. It also acknowledges limitations of the study, including sample size, data availability, and potential biases.
Schlüsselwörter (Keywords)
The study focuses on key concepts like ESG performance, corporate bond yield spreads, litigation provisions, litigation risk, and sustainability. It examines the relationship between these factors, exploring the impact of ESG on financial performance and the potential role of litigation risk in this context. Furthermore, the study incorporates factors like time, industry, and country as moderators of the relationship between ESG and bond spreads.
Frequently Asked Questions
How does ESG performance affect corporate bond spreads?
The study finds a significant negative relationship, meaning that higher ESG scores generally lead to lower bond yield spreads and reduced borrowing costs.
Which ESG factor has the strongest impact on bond spreads?
Most of the negative effect on yield spreads is attributed to the environmental (E) performance of the company.
Has the impact of sustainability on debt costs changed over time?
Yes, there was a paradigm shift. Before the financial crisis, the effect was positive, but it turned negative in subsequent years as sustainability gained importance.
What role do litigation provisions play in this context?
ESG performance tends to reduce litigation risks, particularly after 2012. However, the social score specifically showed a positive relationship with litigation provisions.
Are there industry-specific differences in ESG benefits?
Yes, strong ESG performance significantly reduces bond spreads in specific sectors like the Mining industry and in more developed countries.
What events were used to test causal relationships?
The study conducted an event study focusing on the Volkswagen scandal and the Paris Climate Agreement to find evidence of causality.
- Quote paper
- Philipp A. Sostmann (Author), 2017, Sustainability Performance, Litigation Provisions and Corporate Bond Spreads, Munich, GRIN Verlag, https://www.grin.com/document/452501
