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Does ESG Predict Business Failure in Brazil? An Application of Machine Learning Techniques

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  • Mehwish Kaleem

    (Faculty of Business & Management, Universiti Sultan Zainal Abidin, Kampung Gong Badak 21300, Terengganu, Malaysia
    Faculty of Management Sciences, University of Gujrat, Gujrat 50700, Punjab, Pakistan)

  • Hassan Raza

    (Department of Management Sciences, Shaheed Zulfikar Ali Bhutto Institute of Science & Technology University, Islamabad 44000, Pakistan)

  • Sumaira Ashraf

    (ADVANCE/CSG Research Center, ISEG—Institute of Economics and Management, University of Lisbon, 1649-004 Lisbon, Portugal
    CEFAGE Research Center, University of Evora, 7004-516 Evora, Portugal)

  • António Martins Almeida

    (CEEAplA (Centre of Applied Economic Studies of the Atlantic), University of Madeira, 9000-072 Funchal, Portugal
    CITUR (Centre for Tourism Research, Development and Innovation), University of Madeira, 9000-072 Funchal, Portugal)

  • Luiz Pinto Machado

    (CITUR (Centre for Tourism Research, Development and Innovation), University of Madeira, 9000-072 Funchal, Portugal)

Abstract

The aim of this study is to explore the influence of environmental, social, and governance (ESG) factors on business failure in Brazil by employing advanced machine learning techniques. We collected data from 235 companies and conducted principal component analysis (PCA) on 40 variables already used in the bankruptcy failure literature, resulting in the formation of seven variables that predict business failure. The results indicate that ESG factors significantly predict business failure in Brazil. This study has implications for investors, policymakers, and business leaders, offering a more precise tool for risk assessment and strategic decision-making.

Suggested Citation

  • Mehwish Kaleem & Hassan Raza & Sumaira Ashraf & António Martins Almeida & Luiz Pinto Machado, 2024. "Does ESG Predict Business Failure in Brazil? An Application of Machine Learning Techniques," Risks, MDPI, vol. 12(12), pages 1-22, November.
    • Handle: RePEc:gam:jrisks:v:12:y:2024:i:12:p:185-:d:1528902
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    References listed on IDEAS

    as
    1. Błażej Prusak, 2018. "Review of Research into Enterprise Bankruptcy Prediction in Selected Central and Eastern European Countries," IJFS, MDPI, vol. 6(3), pages 1-28, June.
    2. Christine Cheng & Stewart Jones & William J. Moser, 2018. "Abnormal trading behavior of specific types of shareholders before US firm bankruptcy and its implications for firm bankruptcy prediction," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 45(9-10), pages 1100-1138, October.
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