Purpose – This research aims to empirically analyze the impact of ESG management on cost of capital. As the importance of ESG disclosure increases, understanding its financial implications has become crucial for firms seeking long-term sustainability and competitive advantage. Specifically, this study examines whether ESG ratings influence both the cost of equity and the cost of debt, providing valuable insights for corporate decision-makers and policymakers.
<br>Design/Methodology/Approach – Using ESG rating data from the KCGS and financial data from Fn-Guide, this study conducts a panel regression to investigate the relationship between ESG ratings and cost of capital. The data consist of firms from 2014 to 2023, covering various industries. The study also examines the effects of individual ESG components(E,S,G) on cost of capital to provide a more detailed assessment of ESG performance.
<br>Findings – This study finds that firms with higher ESG ratings tend to significantly lower both cost of debt and cost of equity; specifically, the ratings in the social (S) and governance (G) areas show the strongest impact in reducing the cost of capital. These findings highlight the financial benefits of robust ESG management and its role in mitigating information asymmetry in capital markets.
<br>Research Implications – The results of this paper can contribute to suggestions that ESG activities should be considered not merely as regulatory compliance, but as strategic investment. By strengthening ESG management, companies can secure capital under more favorable conditions in the capital market, which can lead to long-term corporate value and sustainable growth.
