Date of Award
Spring 2021
Degree Name
Bachelor of Science (BS)
Advisor(s)
N. K. Chidambaran
Abstract
Environmental, Social & Governance practices are increasingly important and firms face pressure from their constituents to improve their CSR profile. We examine whether issuer ESG ratings affect bond yields, bond ratings, and the covenants on bonds. We find that the offer yield and spread are lower if the KLD score, our metric of a firm’s ESG rating, is high. We also find that firms with higher KLD scores have a better credit rating. Somewhat surprisingly, we find that the bonds sold by firms with higher KLD scores have a larger number of covenants. Our findings suggest that firms with better KLD profiles benefit by lowering their cost of capital, an effect that is explained by good CSR profiles leading to better credit ratings. Issuers with high CSR scores also benefit with having more covenants on the bond issue. We conclude that adding specific CSR targets within risk profiles could incentivize investors to consider these factors in their investment decisions and reward positive ESG metrics for a firm in terms of obtaining debt. We propose to extend our base study by examining the impact of alternate CSR scores, such as the Asset4 scores and ratings from The Corporate Registry. We also propose to investigate further the relationship between an issuer’s CSR scores and the level of bond covenants on the bond issue.
Recommended Citation
Sansi, Resham, "The Impact of ESG Scores on Bond Yields and Bond Characteristics" (2021). Gabelli School of Business Honors Thesis Collection. 54.
https://research.library.fordham.edu/gabelli_thesis/54
