A Correlation Study on the Relationship between Credit Default Swap (CDS) Spreads and ESG Sentiment in the Banking Sector

Abstract: This study examines the influence of online ESG sentiment on credit market price movement in the banking sector. By employing a panel regression model with fixed effect for firms and time, the study’s findings indicate an inverse relationship between online ESG sentiment and CDS spread in accordance, to some extent, with previous literature. Additionally, the study investigates the impact throughout different time periods, regional effect and sentiment asymmetry. However, limited supporting evidence is found for online ESG sentiment and CDS spread in the banking sector when it comes to regional differences, asymmetric relationships for the ESG sentiment and during periods of economic uncertainty. The study contributes insight into ongoing research on understanding ESG’s impact on credit risk in the banking sector and indicates that incorporating ESG could help banks in managing their risk mitigation