The impact of ESG performance on cost of equity capital

Abstract

This paper analyzes the relationship between ESG performance and the cost of equity financing from the perspective of the three dimensions of ESG. On the basis of MSCI ESG, this paper makes an innovative selection of 50 U.S. companies based on past research. On the basis of the theory of asymmetric information, stakeholder, signaling, and corporate risk management, this paper builds a correlative model and makes an analysis of the relationship between ESG performance and equity funding. The results show that there is a negative relationship between ESG performance and equity funding. These results not only add value to ESG studies, but also offer a valuable perspective to companies that wish to optimize their funding costs by enhancing their ESG results, thus underlining the real importance of CSR in the current economy.