Exploring Governance Failures in Australia: ESG Pillar-Level Analysis of Default Risk Mediated by Trade Credit Financing

Thuong Thi Le, Tanvir Bhuiyan, Thi Le and Ariful Hoque ()
Additional contact information
Thuong Thi Le: Murdoch Business School, Murdoch University, 90 South St, Murdoch, WA 6150, Australia
Tanvir Bhuiyan: Murdoch Business School, Murdoch University, 90 South St, Murdoch, WA 6150, Australia
Thi Le: Murdoch Business School, Murdoch University, 90 South St, Murdoch, WA 6150, Australia
Ariful Hoque: Murdoch Business School, Murdoch University, 90 South St, Murdoch, WA 6150, Australia

JRFM, 2025, vol. 18, issue 8, 1-26

Abstract: This study examines the impact of overall Environmental, Social, and Governance (ESG) performance and its pillars on the default probability of Australian-listed firms. Using a panel dataset spanning 2014 to 2022 and applying the Generalized Method of Moments (GMM) regression, we find that firms with higher ESG scores exhibit a significantly lower likelihood of default. Disaggregating the ESG components reveals that the Environmental and Social pillars have a negative association with default risk, suggesting a risk-mitigating effect. In contrast, the Governance pillar demonstrates a positive relationship with default probability, which may reflect potential greenwashing behavior or an excessive focus on formal governance mechanisms at the expense of operational and financial performance. Furthermore, the analysis identifies trade credit financing (TCF) as a partial mediator in the ESG–default risk nexus, indicating that firms with stronger ESG profiles rely less on external short-term financing, thereby reducing their default risk. These findings provide valuable insights for corporate management, investors, regulators, and policymakers seeking to enhance financial resilience through sustainable practices.

Keywords: ESG; ESG pillars; probability of default; trade credit financing (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2025
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.mdpi.com/1911-8074/18/8/464/pdf (application/pdf)
https://www.mdpi.com/1911-8074/18/8/464/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jjrfmx:v:18:y:2025:i:8:p:464-:d:1728289

Access Statistics for this article

JRFM is currently edited by Ms. Chelthy Cheng

More articles in JRFM from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().