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Corporate environmental responsibility and default risk: Evidence from China

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

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.

Suggested Citation

  • Shih, Yi-Cheng & Wang, Yao & Zhong, Rui & Ma, Yi-Ming, 2021. "Corporate environmental responsibility and default risk: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 68(C).
    • Handle: RePEc:eee:pacfin:v:68:y:2021:i:c:s0927538x21001037
    DOI: 10.1016/j.pacfin.2021.101596
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    6. Wu, Dexiang & Cheng, Huihui & Luo, Cuicui & Han, Liyan, 2022. "Does government initiated corporate social responsibility lower the default risk? Evidence from the targeted poverty alleviation campaign in China," Pacific-Basin Finance Journal, Elsevier, vol. 76(C).
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    More about this item

    Keywords

    Corporate environmental responsibility; Default risk; Energy consumption; Pollution;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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