The Effect of Countries’ ESG Ratings on Sovereign Credit Default Swaps: An empirical evidence on OECD countries (2008-2019)

Abstract

Purpose: The purpose of this paper to examine whether Environmental, Social, and Governance (ESG) ratings of the countries can affect their 5-year Credit Default Swaps (CDS) and whether there is a significant association between ESG ratings and CDS. Design/methodology/approach: The econometric analysis of this research which is Fixed effect panel least squares regression incorporates data from 25 OECD countries between the period from 2008 to 2019. ESG ratings calculated by Thomson Reuters Eikon, Standart & Poor’s CDS ratings, GDP growth rate, Inflation rate, the general government gross debt to GDP ratio and trade openness are used as independent variables, while sovereign Credit Default Swaps with 5-year maturity is used as the dependent variable in the analysis. Findings: In reference to the consequences of analysis, there is a significantly negative but modest association is found between countries' ESG Ratings and their CDS. The analysis also shows that countries with good ESG scores are experienced lower CDS. Originality/value: This research extends previous studies by revealing the significant relationship between ESG and CDS of countries based on empirical evidence, using up-to-date data (last 11 years) from 25 OECD countries.