ESG Disclosure, REIT Debt Financing and Firm Value

The Journal of Real Estate Finance and Economics, Forthcoming

52 Pages Posted: 15 Jul 2021 Last revised: 20 Jul 2021

See all articles by Zifeng Feng

Zifeng Feng

The University of Texas at El Paso

Zhonghua Wu

Florida International University (FIU)

Date Written: July 10, 2021

Abstract

Using recently available GRESB ESG public disclosure data for REITs around the world, we examine how ESG disclosure is related to REIT debt financing and firm value. We find that REITs with higher levels of ESG disclosure have lower cost of debt, higher credit ratings, and higher unsecured debt to total debt ratio, controlling for key firm characteristics. These findings suggest that improving ESG disclosure can help REITs to gain better access to the capital markets and enhance corporate financial flexibility, as lenders have paid close attention to a firm’s ESG disclosure and integrated evaluation of ESG factors into their lending decisions. Moreover, firm value of REITs is positively associated with their ESG disclosure level. When using the Covid-19 pandemic as a quasi-experimental setting, we find evidence that REITs with higher ESG disclosure levels before the pandemic exhibit higher firm value during the pandemic. These results indicate that investors do value active ESG disclosure by REITs. Additional analyses show that ESG disclosure level is sensitive to institutional ownership, implying that institutional investors may drive REIT ESG disclosure efforts. Taken together, this paper suggests that effective ESG disclosure can have a positive impact on REIT debt financing and firm value due to the increased corporate transparency, and the ESG reporting framework developed by GRESB appears to be effective to provide transparency and comparability across the global real estate industry.

Keywords: ESG Disclosure, Debt Financing, Financial Flexibility, Firm Value, REIT

JEL Classification: G11, J24, R33

Suggested Citation

Feng, Zifeng and Wu, Zhonghua, ESG Disclosure, REIT Debt Financing and Firm Value (July 10, 2021). The Journal of Real Estate Finance and Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3886058

Zifeng Feng (Contact Author)

The University of Texas at El Paso ( email )

500 W. University Ave.
El Paso, TX 79968
United States

HOME PAGE: http://https://sites.google.com/view/zifeng-feng/home

Zhonghua Wu

Florida International University (FIU) ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States

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