Discussion on the Path of ESG Performance Alleviating Corporate Financial Constraints and Optimizing Investment Activities from the Perspective of Corporate Finance
DOI:
https://doi.org/10.54097/hncg5c78Keywords:
ESG performance, financing constraints, investment efficiency, information asymmetry, agency costs, cost of capitalAbstract
From a corporate finance theoretical viewpoint, this paper explores potential structural channels through which environmental, social, and governance (ESG) performance can reduce corporate financing restrictions and enhance corporate investment efficiency. The article conceptualises superior sustainability performance as a potential governance and information mechanism that may lessen core market frictions, rather than conceptualising ESG participation just as an ethical commitment or public relations posture. By combining foundational theories of information asymmetry, agency costs, and capital structure with modern sustainability literature, this paper discusses how ESG performance may be linked to lower external financing frictions, stronger managerial oversight, and broader access to institutional capital. It also shows how simultaneous reductions in external financing costs and improvements in internal oversight might potentially assist reduce under-investment of potentially lucrative initiatives and restrict over-investment into value-destroying activities. The study closes with practical insights for linking materiality-focused sustainability disclosure with long-term business financial strategy.
Downloads
References
[1] Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 13(2), 187–221. https://doi.org/10.1016/0304-405X(84)90023-0 DOI: https://doi.org/10.1016/0304-405X(84)90023-0
[2] Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. American Economic Review, 76(2), 323–329. https://doi.org/10.2139/ssrn.99580 DOI: https://doi.org/10.2139/ssrn.99580
[3] Biddle, G. C., Hilary, G., & Verdi, R. S. (2009). How does financial reporting quality relate to investment efficiency? Journal of Accounting and Economics, 48(2–3), 112–131. https://doi.org/10.1016/j.jacceco.2009.09.001 DOI: https://doi.org/10.1016/j.jacceco.2009.09.001
[4] Bénabou, R., & Tirole, J. (2010). Individual and corporate social responsibility. Economica, 77(305), 1–19. https://doi.org/10.1111/j.1468-0335.2009.00848.x DOI: https://doi.org/10.1111/j.1468-0335.2009.00843.x
[5] Dhaliwal, D. S., Li, O. Z., Tsang, A., & Yang, Y. G. (2011). Voluntary nonfinancial disclosure and the cost of equity capital: The initiation of corporate social responsibility reporting. The Accounting Review, 86(1), 59–100. https://doi.org/10.2308/accr.00000009 DOI: https://doi.org/10.2308/accr.00000005
[6] El Ghoul, S., Guedhami, O., Kwok, C. C. Y., & Mishra, D. R. (2011). Does corporate social responsibility affect the cost of capital? Journal of Banking & Finance, 35(9), 2388–2406. https://doi.org/10.1016/j.jbankfin.2011.02.007 DOI: https://doi.org/10.1016/j.jbankfin.2011.02.007
[7] Goss, A., & Roberts, G. S. (2011). The impact of corporate social responsibility on the cost of bank loans. Journal of Banking & Finance, 35(7), 1794–1810. https://doi.org/10.1016/j.jbankfin.2010.12.009 DOI: https://doi.org/10.1016/j.jbankfin.2010.12.002
[8] Cheng, B., Ioannou, I., & Serafeim, G. (2014). Corporate social responsibility and access to finance. Strategic Management Journal, 35(1), 1–23. https://doi.org/10.1002/smj.2131 DOI: https://doi.org/10.1002/smj.2131
[9] Bae, K.-H., El Ghoul, S., Guedhami, O., Kwok, C. C. Y., & Zheng, Y. (2019). Does corporate social responsibility reduce the costs of high leverage? Evidence from capital structure and product market interactions. Journal of Banking & Finance, 100, 135–150. https://doi.org/10.1016/j.jbankfin.2018.12.014 DOI: https://doi.org/10.1016/j.jbankfin.2018.11.007
[10] Khan, M., Serafeim, G., & Yoon, A. (2016). Corporate sustainability: First evidence on materiality. The Accounting Review, 91(6), 1697–1724. https://doi.org/10.2308/accr-51307 DOI: https://doi.org/10.2308/accr-51383
[11] Gillan, S. L., Koch, A., & Starks, L. T. (2021). Firms and social responsibility: A review of ESG and CSR research in corporate finance. Journal of Corporate Finance, 66, 101889. https://doi.org/10.1016/j.jcorpfin.2020.101889 DOI: https://doi.org/10.1016/j.jcorpfin.2021.101889
Downloads
Published
Issue
Section
License
Copyright (c) 2026 International Journal of World Economic Research
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
