The relationship of intangible capital and ESG score on capital structure: evidence from Thailand

Abstract

This study examines whether intangible capital influences capital structure which influent to cost of debt. Moreover, this study also analyzes more whether adding the effect of and ESG performance as risk reduction together with intangible capital affect to capital structure by using financial leverage and WACC cost of debt as the dependent variable and using intangible capital and ESG performance as independent variable.

The empirical results of this study show intangible capital and financial leverage are not relevant under these equations. Moreover, they also have no relationship between intangible capital and cost of debt, and there is a 10% chance that the observed a negative relationship between the companies which have the increase in intangible capital with the higher ESG score and financial leverage due to random chance rather than a true association. However, the interesting parts is when we focus within firm, increasing in ESG score is associated with increasing in cost of debt. These results are opposite to the primary expectation that ESG score would reduce that risk. The backup information of these results is mainly associated with Gonçalves, Dias et al. (2022) who concluded that creditors believe that the sustainability activities with the borrower’s firms are considered as a waste of a firms’ cost under the overinvestment theory.