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Corporate environmental responsibility and default risk: Evidence from China

Yi-Cheng Shih, Yao Wang, Rui Zhong and Yi-Ming Ma

Pacific-Basin Finance Journal, 2021, vol. 68, issue C

Abstract: We use a novel and comprehensive dataset to investigate the influence of corporate environmental responsibility on the default risk of listed firms in China. We document a significant and negative impact of environmental performance on a firm's default risk. We use instrumental variables regressions and placebo tests to address endogeneity concerns and document consistent results. Further, we conduct cross-sectional analysis and find a strong negative influence of environmental performance on default risk in firms with high systematic risk, weak fundamentals, severe pollution, and high energy consumption, supporting volatility and environmental regulation uncertainty channels. Our findings reveal the externality of corporate environmental responsibility on a firm's financial risk profile.

Keywords: Corporate environmental responsibility; Default risk; Energy consumption; Pollution (search for similar items in EconPapers)
JEL-codes: G32 G33 Q52 Q56 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:68:y:2021:i:c:s0927538x21001037

DOI: 10.1016/j.pacfin.2021.101596

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