Firm ESG Reputation Risk and Debt Choice

Abstract

Using a novel sample covering 3,783 U.S. public firms from 2007 to 2020, we examine how negative media coverage of firm-level Environmental, Social, and Governance (ESG) practices affects a firm’s debt choice. We find that firms with higher ESG reputation risk rely more on public bond debt than bank debt in their debt structures. The Social and Governance components, in particular, matter. Furthermore, those firms suffering more negative news coverage are more likely to switch their debt choice and issue new bonds instead of borrowing bank debt. Overall, our study presents empirical evidence on the interplay between ESG media coverage and debt financing.

Keywords: ESG Risk, Debt Structure, Capital Structure, Debt Choices, Information Asymmetry

JEL Classification: G20, G21, G30, G32