Empirical Studies of the Impact of ESG on Corporate Credit: An Insight from the Popularity Asset Pricing Model

Empirical Studies of the Impact of ESG on Corporate Credit: An Insight from the Popularity Asset Pricing Model

• Eugene Yeboah, University of Connecticut

Abstract:

This study tests various factors that determine a firm’s credit risk premium via CDS spread by examining an asset’s risk and non-risk factors (attributes) using a framework that integrates a cross-section between classical and behavioral finance. The effect of a firm’s degree of adherence to environmental, social, and governance (ESG) practices is treated as one of these factors. The degree of popularity of ESG awareness is treated as taste or preference rather than a risk factor. ESG score seems to be dominated by the environmental pillar of the practices among investment-grade credits, but not so for high. The probability of default dominates the risk premium. This confirms that a well-established, mature firm with a strong advocate for environmental issues will likely follow social and governance policies aligned with the overall ESG practices.

 

All Illinois Tech faculty, students, and staff are invited to attend.

The Friday Research Presentations series showcases ongoing academic research projects conducted by Stuart School of Business faculty and students, as well as guest presentations by Illinois Tech colleagues, business professionals, and faculty from other leading business schools.

Join session on Blackboard Collaborate