The Effect Of Environmental, Social, and Governance (ESG) Pillars and State Ownership on Firm Costs of Debt

Abstract

The  relevance  of  environmental,  social,  and  governance  (ESG)  factors has  become  increasingly  significant  in  the  business  world  due  to  the growing  recognition  of  sustainability  principles. This  study  investigates the  impact  of  ESG  pillars  and  state ownership  on  the  cost  of  debt  in non financial  companies.  The  analysis  is  conducted  on  publicly  listed firms  in  emerging  Asian countries  over  the  period  2016 to  2023,  using panel  data  regression.  Drawing  on  various  theories  such  as  agency theory,    stakeholder   theory,    and    signaling    theory,   the   research demonstrates  that  state owned  enterprises  with  higher  ESG  scores incur lower debt costs. Another finding is that the social pillar positively influences  debt  costs.  Although  the  environmental  pillar  is  negatively associated with debt costs, its impact is not significant. Meanwhile, the governance   pillar   has   a   significant   negative   effect   on   debt   costs, consistent with agency theory. The results of this study are expected to provide  insights  for  stakeholders,  particularly  managers  and  company owners,  regarding the  role  of  ESG  and  state  ownership  in  determining firm cost of debt.