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https://doi.org/10.21256/zhaw-29395| Publication type: | Master thesis |
| Title: | The impact of ESG scores on a firm’s cost of capital |
| Authors: | Löffler, Marius |
| Advisors / Reviewers: | Gutsche, Robert Kaya, Orcun |
| DOI: | 10.21256/zhaw-29395 |
| Extent: | 62 |
| Issue Date: | 2023 |
| Publisher / Ed. Institution: | ZHAW Zürcher Hochschule für Angewandte Wissenschaften |
| Publisher / Ed. Institution: | Winterthur |
| Language: | English |
| Subject (DDC): | 658.1: Organization and finance |
| Abstract: | This master’s thesis investigates the impact of ESG scores on a firm’s cost of capital by answering the research question “To what extent do ESG scores influence a firm's cost of capital?”. Thereby, a negative character of the relationship between ESG scores and a company’s cost of capital is assumed while the conclusions of this thesis shall supplement the state of research to the extent that it investigates the impact of a company’s ESG score on the effect chain from a company’s risk profile to its cost of equity, cost of debt, and the weighted average cost of capital comprehensively to gain a full picture of the impact. To arrive at the conclusions, the study utilizes fixed effect regression analyses with four different models that carry the beta factor, the cost of equity, the cost of debt, and the weighted average cost of capital as the dependent variables respectively. At the same time, the ESG score serves as the independent variable of interest and it is controlled for firm characteristics by incorporating the natural logarithm of total assets, the leverage ratio, the return on assets, and the price-to-book ratio as control variables. Furthermore, the produced results are validated by performing three distinct robustness tests. Eventually, a balanced panel dataset comprising 1625 observations from 355 unique stocks listed in the S&P 500 over the period from 2017 to 2021 serves as the basis for the present empirical investigation. The results suggest rejecting the first hypothesis that good ESG scores lead to lower beta factors. Thus, no evidence for the assumed risk-mitigating impact of ESG scores as a trigger for an effect chain that leads to lower capital costs for a firm is provided. However, the three further hypotheses are confirmed with the regression results demonstrating a significant negative relationship between the ESG score and the cost of equity, the cost of debt, and the weighted average cost of capital. Consequently, this research provides backing for the significant negative relationships between ESG scores and the three dimensions of a firm’s cost of capital that have been observed in previous studies. Furthermore, the findings imply that firms with good ESG scores benefit from lower cost of capital which introduces an economic argument to managerial considerations regarding ESG performance enhancements. Besides, they support the effectiveness of ESG-related regulations and directives that force firms to face the tradeoff between their ESG performance and their cost of capital and provide valuable insights for finance professionals in the field of security valuation where the costs of capital are of central importance. |
| URI: | https://digitalcollection.zhaw.ch/handle/11475/29395 |
| License (according to publishing contract): | CC BY-NC-ND 4.0: Attribution - Non commercial - No derivatives 4.0 International |
| Departement: | School of Management and Law |
| Appears in collections: | MSc Banking and Finance |
Files in This Item:
| File | Description | Size | Format | |
|---|---|---|---|---|
| 2023_Löffler_Marius_MSc_BF.pdf | 2.04 MB | Adobe PDF |  View/Open |
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Löffler, M. (2023). The impact of ESG scores on a firm’s cost of capital [Master’s thesis, ZHAW Zürcher Hochschule für Angewandte Wissenschaften]. https://doi.org/10.21256/zhaw-29395
Löffler, M. (2023) The impact of ESG scores on a firm’s cost of capital. Master’s thesis. ZHAW Zürcher Hochschule für Angewandte Wissenschaften. Available at: https://doi.org/10.21256/zhaw-29395.
M. Löffler, “The impact of ESG scores on a firm’s cost of capital,” Master’s thesis, ZHAW Zürcher Hochschule für Angewandte Wissenschaften, Winterthur, 2023. doi: 10.21256/zhaw-29395.
LÖFFLER, Marius, 2023. The impact of ESG scores on a firm’s cost of capital. Master’s thesis. Winterthur: ZHAW Zürcher Hochschule für Angewandte Wissenschaften
Löffler, Marius. 2023. “The Impact of ESG Scores on a Firm’s Cost of Capital.” Master’s thesis, Winterthur: ZHAW Zürcher Hochschule für Angewandte Wissenschaften. https://doi.org/10.21256/zhaw-29395.
Löffler, Marius. The Impact of ESG Scores on a Firm’s Cost of Capital. ZHAW Zürcher Hochschule für Angewandte Wissenschaften, 2023, https://doi.org/10.21256/zhaw-29395.
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