Financially Distressed Firms: Environmental, Social, and Governance Reporting in Indonesia

Iman Harymawan, Fajar Kristanto Gautama Putra, Bayu Arie Fianto and Wan Adibah Wan Ismail
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Iman Harymawan: Department of Accounting, Faculty of Economic and Business, Universitas Airlangga, Surabaya 60115, East Java, Indonesia
Fajar Kristanto Gautama Putra: Department of Accounting, Faculty of Economic and Business, Universitas Airlangga, Surabaya 60115, East Java, Indonesia
Bayu Arie Fianto: Department of Islamic Economics, Faculty of Economic and Business, Universitas Airlangga, Surabaya 60115, East Java, Indonesia
Wan Adibah Wan Ismail: Faculty of Accountancy, Universiti Teknologi Mara, Kedah 08400, Malaysia

Sustainability, 2021, vol. 13, issue 18, 1-18

Abstract: This study examines the relationship between financial distress and environmental, social, and governance (ESG) disclosure. We hypothesize that financially distressed firms are tempted to enhance ESG disclosure as it provides higher performance in terms of financial and market perspectives. ESG disclosure needs substantial resources, which financially distressed firms may not be able to provide. In Indonesian settings, we find that financially distressed firms have lower ESG disclosure quality than non-distressed firms. Our results are robust due to lagged variable, Heckman’s two stages, and coarsened exact matching regression showing consistent results. Furthermore, our results are consistent with three years of rolling windows of financial distress and all sections of ESG reporting, except the general information section. This study extends the scope of prior studies by focusing on firms’ eagerness to provide higher quality ESG disclosure, particularly distressed firms.

Keywords: financial distress; ESG disclosure; CSR disclosure; sustainability reporting; risk preference (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (13)

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