Third-party ESG Assurance and Cost of Debt: Evidence from European Non-Financial Listed Firms

Sammanfattning

This thesis examines the association between third-party ESG assurance, the type of provider, and firms’ cost of debt among publicly listed non-financial firms within the European Union. Drawing upon information asymmetry, signaling theory, and legitimacy theory, the study investigates whether third-party ESG assurance and the use of Big 4 assurance providers are associated with firms' cost of debt. The analysis is based on an unbalanced panel dataset consisting of 12,510 firm-year observations from 1,390 firms over the period 2015-2023. Secondary archival data were collected from the LSEG database (formerly Refinitiv), and the hypotheses were tested using panel ordinary least squares (OLS) regression models including firm-level control variables as well as country, industry, and year fixed effects. The empirical findings do not indicate statistically observable associations between third-party ESG assurance or Big 4 assurance providers, and firms’ cost of debt within the examined European setting. The results suggest that the informational and signaling benefits associated with ESG assurance may be less pronounced in relatively mature and highly regulated institutional environments characterized by extensive disclosure requirements and established monitoring mechanisms. Furthermore, the findings may indicate that the reputation of the assurance provider provides limited incremental informational value in settings where ESG reporting practices have become increasingly standardized. This thesis contributes to the literature on ESG assurance and debt financing by providing evidence from a European context characterized by evolving sustainability regulation and relatively high institutional environments when evaluating the economic relevance of ESG assurance practices and assurance provider type.