ABSTRACT This study examines the relationship between environmental, social, and governance (ESG) controversies and corporate financing costs, focusing on the moderating effect of national culture. It analyzes European companies listed on the STOXX 600 Index from 2016 to 2023. The findings indicate that lenders perceive ESG scandals unfavorably, with certain cultural dimensions moderating this effect. In countries characterized by individualism and masculine cultural traits, companies involved in ESG controversies, regarded as unethical, face higher equity costs. Conversely, countries with high uncertainty avoidance and power distance experience increased long‐term debt costs. We find that national culture does not significantly affect short‐term debt financing. These findings provide valuable insights for financial regulators seeking to mitigate the impact of ESG controversies and enhance corporate financing. The results are robust to alternative measures of ESG controversies, cultural dimensions, and endogeneity concerns.
Brinette et al. (2026) studied this question.