Sustainability and ESG-Driven Capital Structure: Evolving Paradigms in Corporate Finance
Sustainability and ESG-Driven Capital Structure: Evolving Paradigms in Corporate Finance

Summary/Abstract: This study examines the influence of environmental, social, and governance (ESG) performance and sustainability governance on corporate capital structure decisions across developed and emerging markets. Drawing on a balanced panel of 2,000 publicly listed firms over the period 2000–2024, the research integrates traditional capital structure theories, trade-off, pecking order, agency, and market timing, with contemporary ESG paradigms. Using fixed effects, random effects, panel-corrected standard errors, and system GMM estimators, the findings reveal that ESG performance increases leverage and debt maturity while significantly reducing the cost of capital. Governance quality amplifies these effects, particularly in emerging markets where institutional enforcement mechanisms are less mature.Robustness checks using alternative ESG metrics, subsample estimations, lagged specifications, and outlier exclusions confirm the stability of results. The evidence suggests that ESG and governance are structural determinants of financing strategy rather than peripheral sustainability attributes, effectively redefining traditional capital structure optimization under sustainability constraints. The study contributes to the development of ESG-integrated corporate finance models and offers policy-relevant insights for managers, investors, and regulators seeking to align financial architecture with long-term sustainability objectives.

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