ESG Performance, Financial Slack, and Financial Constraints: Evidence from Seasoned Equity Offerings of Korean Firms

This paper examines environmental, social, and governance (ESG) performance around seasoned equity offerings (SEOs). A firm may improve ESG performance prior to SEOs to the extent that it believes that investors will be more favorable to firms with better ESG performance (window-dressing hypothesis). In contrast, SEO may indicate that a firm is short of internal resources and a firm under little financial slack may sacrifice ESG performance (Slack resource hypothesis). Through empirical analyses, we find support for the latter: ESG performance of firms decrease significantly around SEOs, while capital expenditures and R&D do not decrease. However, financially constrained firms do not reduce ESG performance, suggesting that these firms care about investors