Journal of Asian Business and Economic Studies
Vol. 32(1) , March 2025, Page 2–14


Does corporate sustainability matter for the capital structure puzzle in OIC countries? Evidence from the COVID-19 pandemic
Hasan Tekin & Ali Yavuz Polat

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Received: November 10, 2025
Revised: November 10, 2025
Accepted: March 01, 2025
Published: November 10, 2025
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Abstract
Purpose This study assesses the impact of environmental, social and governance (ESG) certification on capital structure decisions considering the COVID-19 pandemic. Design/methodology/approach The study utilizes the annual Asset-4 and Datastream data of Thomson Reuters Eikon for non-financial firms in member states of the Organization of Islamic Cooperation (OIC). Firm-fixed effects are used to avoid unobserved heterogeneity. Findings Firms with higher corporate sustainability have a higher leverage ratio. The positive impact of ESG scores on book leverage became more significant during the COVID-19 pandemic. These findings imply that ESG activities might serve as a signalling tool, especially considering the pandemic: ESG activities mitigate financial constraints when they are most pronounced and impactful. Practical implications Firms should invest in ESG activities to alleviate financial constraints. Researchers and practitioners are encouraged to explore how ESG and macro-specific factors jointly affect debt financing. Policymakers should incentivize ESG investment to reduce agency conflicts. Regulators in OIC countries should support firms that are encountering obstacles in obtaining ESG certification. Originality/value To date, the role of ESG investing in capital structure policy by considering the recent pandemic has not been assessed in OIC countries.

Keywords
COVID-19, ESG, Financial constraint, Leverage, G01, L25, Q01
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