ESG ratings and trade credit: inverted U-shaped moderating role of information transparency and executives with overseas backgrounds.

Abstract

In the context of carbon peaking and carbon-neutral target, enterprises need to adjust their resource allocation and practice environmental, social, and governance (ESG) activities. Previous literature ignores the resources and costs that enterprises may consume to improve ESG ratings, leading to an unclear relationship between ESG ratings and trade credit. We investigate how ESG ratings affect trade credit using the inverted U-shaped (U-shaped) moderating effect regression model. The result shows that ESG ratings have an inverted U-shaped relationship with trade credit. Information transparency moderates the curvilinear relationship between ESG ratings and trade credit, with higher information transparency flattening the shape of the inverted U-shaped curve and moving the inflection point to the left. Executives with overseas backgrounds significantly moderate the inverted U-shaped relationship between ESG ratings and trade credit. Executives with overseas backgrounds flatten the inverted U-shaped relationship, and the inflection point shifts to the right. Overall, our findings show that higher ESG ratings do not help enterprises to expand trade credit in emerging market countries. Higher ESG ratings consume more corporate resources and are more likely to become a tool for management self-interest.