Bank debt signalling and corporate sustainability: Does incongruence blur the message?

Abstract

This paper examines the interplay between the signalling function of bank debt and other indicators which might reveal incongruence among a firm's actions and question the sincerity of its sustainability engagement. Empirical evidence on a sample of U.S. companies reveals that the presence of bank debt in a firm's leverage improves the performance of sustainability. This beneficial effect of bank debt is greater for the environmental pillar. However, bank debt signalling weakens (or even disappears) in the presence of other indicators that express incongruence, such as a low uniformity in the commitment across sustainability pillars and belonging to a culpable industry. Overall, this study highlights the importance of harmonizing the signal set so that it has an impact on firm value.