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Is mandatory sustainability disclosure associated with default risk? Evidence from emerging markets

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  • Do, Trung K.
  • Vo, Xuan Vinh

Abstract

We examine the impact of mandatory environmental, social, and governance (ESG) disclosure on firms’ default risk. Using a comprehensive sample of 17 emerging countries, we empirically show that firms subject to the mandatory ESG regulation have decreased default risk subsequent to the mandate. This result is consistent with the argument that implementation of mandatory ESG disclosure improves corporate transparency and serves as a substitute for corporate governance mechanisms. Overall, our study supports the positive view of mandatory ESG disclosure and thus contributes to a timely debate on the pros and cons of the mandate in the economy and wider society.

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  • Do, Trung K. & Vo, Xuan Vinh, 2023. "Is mandatory sustainability disclosure associated with default risk? Evidence from emerging markets," Finance Research Letters, Elsevier, vol. 55(PA).
    • Handle: RePEc:eee:finlet:v:55:y:2023:i:pa:s1544612323001915
    DOI: 10.1016/j.frl.2023.103818
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    2. Liu, Zhonglu & Pang, Tengfei & Sun, Haibo, 2024. "Decarbonization policy and high-carbon enterprise default risk: Evidence from China," Economic Modelling, Elsevier, vol. 134(C).

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    More about this item

    Keywords

    Mandatory ESG disclosure; Default risk; Monitoring; Emerging markets;
    All these keywords.

    JEL classification:

    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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