Purpose: This study examines the effect of Environmental, Social, and Governance (ESG) performance on the financial outcomes and cost of capital in small and medium-sized enterprises (SMEs). Design/methodology/approach: Using a dataset of 227 SMEs from 2015–2020, the research employs multiple linear regression to assess the relationship between ESG scores, financial performance (ROA, ROE), and capital structure (WACC, CoE, CoD). Findings: Higher ESG scores are linked to improved financial performance and reduced cost of capital, showing that ESG practices positively influence SMEs’ financial health. Originality: This research uniquely focuses on the often underexplored SME sector, providing fresh insights into how ESG strategies can improve financial outcomes and optimize capital costs. Research limitations/implications: The study is limited to SMEs in specific regions and a five-year time frame. Future research could broaden the analysis across different regions or industries. Practical implications: Managers should prioritize ESG initiatives to enhance profitability and reduce financing costs. Investors can use ESG scores to better assess SME investment risk. Social implications: By integrating ESG practices, SMEs contribute to broader societal goals such as environmental sustainability and social responsibility, benefiting both stakeholders and communities.

Green Scores, Golden Returns: ESG's Role in Shaping SME Financial Outcomes

Rossi, Matteo;CAPASSO, Arturo;SOLAK, Ilkay;
In corso di stampa

Abstract

Purpose: This study examines the effect of Environmental, Social, and Governance (ESG) performance on the financial outcomes and cost of capital in small and medium-sized enterprises (SMEs). Design/methodology/approach: Using a dataset of 227 SMEs from 2015–2020, the research employs multiple linear regression to assess the relationship between ESG scores, financial performance (ROA, ROE), and capital structure (WACC, CoE, CoD). Findings: Higher ESG scores are linked to improved financial performance and reduced cost of capital, showing that ESG practices positively influence SMEs’ financial health. Originality: This research uniquely focuses on the often underexplored SME sector, providing fresh insights into how ESG strategies can improve financial outcomes and optimize capital costs. Research limitations/implications: The study is limited to SMEs in specific regions and a five-year time frame. Future research could broaden the analysis across different regions or industries. Practical implications: Managers should prioritize ESG initiatives to enhance profitability and reduce financing costs. Investors can use ESG scores to better assess SME investment risk. Social implications: By integrating ESG practices, SMEs contribute to broader societal goals such as environmental sustainability and social responsibility, benefiting both stakeholders and communities.
In corso di stampa
ESG, Financial Performance, SMEs, Cost of Capital
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/20.500.12070/70085
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