Corporate ESG Profiles and Banking Relationships

61 Pages Posted: 13 Feb 2019 Last revised: 1 Mar 2021

See all articles by Joel F. Houston

Joel F. Houston

University of Florida - Department of Finance, Insurance and Real Estate

Hongyu Shan

Fordham University - Finance Area

Date Written: October 24, 2019

Abstract

We show that banking relationships act as a transmission mechanism for promoting corporate Environmental, Social and Governance (ESG) policies. Specifically, banks are more likely to grant loans to borrowers with similar ESG profiles, and positively influence subsequent borrower ESG performance. This influence is more pronounced when 1) banks have significantly better ESG ratings than their borrowers, and 2) borrowers are bank-dependent. We exploit M&A among lenders as a source of quasi-exogenous variations in the lender’s ESG standard to alleviate concerns on endogeneity. Overall, our study presents the first empirical evidence on the interplay between responsible lending and borrower ESG behavior.

Keywords: ESG, banking, responsible lending, creditor control

JEL Classification: G21, G28, G38, Q50

Suggested Citation

Houston, Joel F. and Shan, Hongyu, Corporate ESG Profiles and Banking Relationships (October 24, 2019). Available at SSRN: https://ssrn.com/abstract=3331617 or http://dx.doi.org/10.2139/ssrn.3331617

Joel F. Houston

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States

Hongyu Shan (Contact Author)

Fordham University - Finance Area ( email )

33 West 60th Street
New York, NY 10023
United States

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