The trade-off between costs and benefits: ESG performance and debt utilization efficiency

Essentially, debt financing aims to enhance corporate performance through effective debt management, underscoring the trade-offs between associated costs and benefits. Using data from Chinese listed firms during 2010–2022, this study defines debt utilization efficiency using a DuPont analysis and demonstrates that in corporate settings, it is significantly improved by environmental, social, and governance (ESG) performance. This conclusion remains unchanged after a battery of robustness tests. Mediation analysis shows that attention from external analysts partially mediates the relationship between ESG performance and debt utilization efficiency. We further find that intense industry competition positively moderates the relationship between ESG performance and debt utilization efficiency, while high environmental uncertainty negatively moderates this relationship. Our study thus expands the literature on debt financing and highlights the role of ESG in financial sustainability.