Golden Ratio-based Leverage Targeting and the ESG Performance of US and European Listed Firms
Kulcsszavak:capital structure, golden ratio, target leverage, ESG performance
Our paper aims to assess whether golden ratio-based leverage targeting is linked to better ESG performance. To answer this research question, we examine the temporal dynamics of leverage in relation to the golden ratio-based leverage targets and study the relationship between golden ratio-based leverage targeting and the ESG performance in a cross-sectional setting. Our main findings show that firms choose to have a book leverage closer to the golden ratio-based leverage targets, when they have a better ESG performance. In addition, golden ratio-based leverage targeting is related to better governance pillar performance in the manufacturing sector, better social pillar performance in the service sector, and better environmental pillar performance in the trade sector. In conclusion, golden ratio-based leverage targeting is predominantly attributed to sector-specific characteristics and heuristic managerial decisions, which ties leverage to the important levels applied by the competitors.