From News to Numbers: Quantifying the Impact of ESG Controversies on Corporate Bond Spreads

65 Pages Posted: 23 Mar 2024

See all articles by Alex Petkevich

Alex Petkevich

University of Denver

Doina Chichernea

University of Denver - Reiman School of Finance

J. Christopher Hughen

University of Denver - Daniels College of Business

Abstract

We examine the impact that media coverage of negative ESG events has on the firm’s cost of debt. Using a novel measure of ESG controversies provided by Refinitiv MarketPsych ESG Analytics, we document that bondholders demand a higher credit spread for bonds issued by firms with higher ESG controversies. The adverse effect of ESG controversies on bond pricing is long-lived and is primarily observed in bond issues with higher credit risk and more pronounced information asymmetry. We also document that current ESG controversies significantly predict an increase in the firm’s future asymmetric information and default risk. ESG news controversies provide economically significant information for bond prices that is incremental to credit and ESG ratings.

Suggested Citation

Petkevich, Alex and Chichernea, Doina and Hughen, John Christopher, From News to Numbers: Quantifying the Impact of ESG Controversies on Corporate Bond Spreads. Available at SSRN: https://ssrn.com/abstract=4770538 or http://dx.doi.org/10.2139/ssrn.4770538

Alex Petkevich (Contact Author)

University of Denver ( email )

2201 S. Gaylord St
Denver, CO 80208-2685
United States

Doina Chichernea

University of Denver - Reiman School of Finance ( email )

2101 S. University Blvd
Denver, CO 80208
United States

John Christopher Hughen

University of Denver - Daniels College of Business ( email )

2101 S. University Blvd
Denver, CO 80208-8951
United States
303-803-6171 (Phone)

HOME PAGE: http://www.hughen.com

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