TY - JOUR
T1 - ESG Factors as a Determinant on Credit Ratings
AU - Jeon, Jin Q.
N1 - Publisher Copyright:
© 2021, Korean Finance Association. All rights reserved.
PY - 2021/5
Y1 - 2021/5
N2 - This study examines how ESG (Environmental, Social, Governance) factors are incorporated in credit ratings in Korea. The empirical results show that ESG scores have, in general, a positive effect on credit ratings, suggesting that corporate ESG is reflected to some extent in credit ratings. Among the factors of ESG, the governance factor has a significant relationship with credit ratings. The result is obvious in that some important governance elements such as internal control devices, disclosure and transparency, and ethical management are included in the aspect of business management risk during credit evaluation. On the other hand, social and environmental factors have a partial or insignificant relationship with credit rating. As social interest in ESG increases, it is highly likely that ESG itself becomes one of the most important determinants on credit ratings in the near future. In such a case, the results of this study can be used as a reference for the decision logic of credit rating reflecting ESG.
AB - This study examines how ESG (Environmental, Social, Governance) factors are incorporated in credit ratings in Korea. The empirical results show that ESG scores have, in general, a positive effect on credit ratings, suggesting that corporate ESG is reflected to some extent in credit ratings. Among the factors of ESG, the governance factor has a significant relationship with credit ratings. The result is obvious in that some important governance elements such as internal control devices, disclosure and transparency, and ethical management are included in the aspect of business management risk during credit evaluation. On the other hand, social and environmental factors have a partial or insignificant relationship with credit rating. As social interest in ESG increases, it is highly likely that ESG itself becomes one of the most important determinants on credit ratings in the near future. In such a case, the results of this study can be used as a reference for the decision logic of credit rating reflecting ESG.
KW - Credit Ratings
KW - Environmental Factor
KW - ESG
KW - Governance Factor
KW - Social Factor
UR - http://www.scopus.com/inward/record.url?scp=85136968984&partnerID=8YFLogxK
U2 - 10.37197/ARFR.2021.34.2.2
DO - 10.37197/ARFR.2021.34.2.2
M3 - Article
AN - SCOPUS:85136968984
SN - 1229-0351
VL - 34
SP - 31
EP - 65
JO - Asian Review of Financial Research
JF - Asian Review of Financial Research
IS - 2
ER -