The impact of ESG performance on debt financing costs from the perspective of supply chain

Abstract

Despite the growing attention given to the impact of ESG performance on corporate finance, such as debt financing costs, little is known about the underlying mechanism. Hence, we aim to answer this question from the supply chain perspective. We use 19,121 enterprise-year observations of 3585 Chinese A-share listed enterprises over the 2013–2022 period and employ panel data regression models with fixed effects estimation. The empirical results confirm a negative relationship between ESG performance and corporate debt financing costs even after a series of robustness tests. We conclude that good ESG performance effectively reduces debt financing costs with a marginal effect of 0.002. This reduction effect can be achieved through two channels: supplier stability and customer concentration. Heterogeneity analyses further demonstrate that the reduction effect is more pronounced in non-state-owned enterprises and enterprises with low industrial competition. Overall, our findings enrich the understanding of how ESG performance reduces debt financing costs and highlight the importance of supply chain management for enterprises.