Abstract
Purpose This study aims to explore the impact of capital structure (CS), including total debts, short-term debt, long-term debt and total shareholder equity, on environmental, social and governance (ESG) performance in the context of Jordan. Design/methodology/approach To achieve the study’s objectives, the authors used the content analysis approach and the longitudinal data generated from the annual reports of 51 industrial companies listed on the Amman Stock Exchange for the period 2012–2020. Findings The findings show that debt financing enhances ESG performance in all dimensions, while financing by equity did not affect ESG. Consequently, Jordanian companies’ managers are trying to reduce agency costs by investing in ESG activities. In addition, companies are focusing on debt financing instead of equity to achieve their financial as well as nonfinancial goals. This is because the opportunism of new shareholders will likely lead to a focus on maximizing their value at the expense of the broader group of stakeholders, and this will adversely affect companies’ ESG performance. Therefore, debt financing limits shareholder control. Originality/value To the best of the authors’ knowledge, this is the first examination of the impact of CS financing choices on ESG performance. Thus, this study has important implications for the decisions of executives, policymakers, shareholders and lenders, as it enables them to better understand the linkage between CS and ESG.