Corporate ESG Performance and Bond Premium

This study investigates the impact of corporate ESG performance on bond credit spreads based on a sample of corporate bonds issued by A-share listed firms in China during 2009–2022. Our findings reveal that higher ESG performance is associated with lower bond credit spreads, implying that firms with superior ESG performance obtain cheaper bond financing. We document three channels linking ESG to credit spreads: the reputation effect, the insurance effect, and the information effect. Heterogeneity analyses show that the negative relationship between ESG and credit spreads is more pronounced among firms that disclose environmental and sustainability information, voluntarily publish social responsibility reports, issue unsecured bonds, or issue bonds without special terms. The effect is also stronger during periods of contractionary monetary policy in China. Moreover, our findings suggest that improvements in firm-level ESG performance and reduced disagreement over ESG ratings contribute to lower bond premiums. Higher corporate ESG performance also exhibits spillover effects, leading to lower credit spreads within the industry. Finally, we show that improved corporate ESG performance reduces bond credit spreads and enhances firm value. Our study provides practical guidance for optimizing bond issuance strategies and managing credit risk through ESG practices.