Unraveling the ‘green-default paradox’: Assessing the influence of gender-diverse boards and socially responsible ratings

Vu Quang Trinh, Nga Nguyen, Phuong Le and Thao Ngoc Nguyen

International Review of Financial Analysis, 2025, vol. 102, issue C

Abstract: We investigate the ‘green-default paradox’ and its connection to gender-diverse boards and socially responsible ratings in influencing the relationship between corporate climate change exposure and distance-to-default. Our analysis uses data from 2004 to 2021 across 42 countries, yielding several significant findings. First, our research challenges the ‘green-default paradox’ by demonstrating that companies with higher climate exposure exhibit a greater distance to default, indicating reduced default risk. Second, our findings suggest that the effectiveness of internal governance factors and external ESG assessments plays a crucial role in moderating this relationship. Specifically, our primary results are more pronounced in firms with greater gender diversity on their boards and higher ESG ratings. Gender-diverse boards signify a company's increased commitment to addressing climate issues, reduced information asymmetry, and improved internal oversight. ESG ratings, serving as an external assessment, reflect a company's exposure to social capital, trust, and a culture focused on stakeholders, all of which suggest enhanced climate risk management. Third, our study reveals a non-linear relationship between climate exposure and distance to default, indicating diminishing benefits beyond a certain exposure threshold.

Keywords: Default risk; Climate change exposure; Board gender diversity; ESG (search for similar items in EconPapers)
JEL-codes: G32 G33 J7 J71 Q54 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:102:y:2025:i:c:s1057521925000985

DOI: 10.1016/j.irfa.2025.104011

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