THE IMPACT OF ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) DISCLOSURE ON FIRM’S DEFAULT RISK

Abstract

This study investigates the impact of ESG disclosure on the default risk of firms operating in 31 countries around the world during the period 2004-2018. Using a panel regression model, the study shows that firms that disclose more ESG information tend to face lower default risk. The robustness of this finding is confirmed by using alternative measures of ESG disclosure and default risk, as well as using a system GMM estimation method to address the endogeneity problem. The results provide important policy implications for corporate managers, investors, lenders, and government policy makers.