The Impact of ESG Ratings on Corporate Financing Costs: Evidence from Listed Companies in China and South Korea

Recent years have seen the ESG acronym emerge as a key term. Considerations are progressively assuming a pivotal role in corporate strategy and investor decision-making. Multiple studies propose that a strong ESG exemplary performance boosts corporate image, lessens risk exposure, and diminishes financial expenses and capital costs. Existing research is predominantly confined to developed settings. Western markets are constrained by limited empirical data from Asian economies. This study examines the impact of ESG ratings on corporate financing costs, comparing the institutional dissimilarities between China and South Korea. Utilizing panel data regression and simulated data from 100 listed firms, the author empirically investigates how ESG scores correlate with a company's Weighted Average Cost of Capital (WACC). The research reveals that national institutional settings substantially tend the interplay between superior ESG performance and diminished financing costs. The outcomes highlight the prominence of institutional quality and the effect of policy milieu on ESG efficacy. The study offers pertinent insights for policymakers, investors, and firms aiming for optimized ESG approaches across diverse regulatory landscapes.