Environmental controversies, environmental fines and firms’ default risk

Simona Cosma, Giuseppe Rimo and Paola Schwizer

Research in International Business and Finance, 2025, vol. 77, issue PA

Abstract: This paper aims to provide empirical evidence on the unexplored relationship between environmental controversies, environmental fines, and firms' default risk, as well as to test whether this relationship changes with firms' level of environmental commitment or the country's environmental awareness. Using a sample of 402 global firms over ten years, we show that an increase in environmental controversies, and thus greater media exposure of firms for environmental damage, increases firms' risk of default. Instead, environmental fines do not significantly influence default risk. Our results also point out that the effect of environmental controversies on default risk is heterogeneous: it is significant exclusively for firms with a higher environmental commitment to reducing carbon emissions and headquartered in countries with greater environmental attention. Our results present several implications for firms, policymakers, and financial institutions.

Keywords: environmental controversies; environmental fines; default risk; ESG (search for similar items in EconPapers)
JEL-codes: G32 G33 M14 Q56 Q57 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:77:y:2025:i:pa:s0275531925001667

DOI: 10.1016/j.ribaf.2025.102910

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