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ESG and Financial Distress: The Role of Bribery, Corruption, and Fraud in FTSE All-Share Companies

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  • Probowo Erawan Sastroredjo

    (School of Business, University of Leicester, Leicester LE2 1RQ, UK
    Department of Management, Parahyangan Catholic University, Bandung 40141, Indonesia)

  • Tarsisius Renald Suganda

    (Faculty of Economics and Business, Ma Chung University, Malang 65151, Indonesia)

Abstract

Our investigation examined the impact of ESG (Environmental, Social, and Governance) activities on corporate financial distress. This research utilised data from companies listed in the FTSE All-Share index from 2014 to 2022 from the Refinitiv EIKON database. We incorporated year- and industry-fixed effects into our analysis to address changing economic conditions and industry-specific effects. ESG scores were used as a proxy for ESG activities, while Z-scores were utilised to gauge financial distress. The results unveiled a compelling trend: ESG activities showcased a negative correlation with financial distress, implying that companies actively involved in ESG actions are less likely to face default, even after incorporating several robustness and endogeneity tests. Moreover, when examining the role of bribery, corruption, and fraud issues (negative issues) as a moderating factor, our findings revealed that lower negative issues strengthen the negative relationship between ESG (governance pillar) and financial distress. This suggests that governance mechanisms effectively reduce financial distress in less corrupt environments, where institutional quality supports properly implementing governance practices. These findings offer valuable insights for companies seeking to mitigate financial distress by adopting ESG strategies.

Suggested Citation

  • Probowo Erawan Sastroredjo & Tarsisius Renald Suganda, 2025. "ESG and Financial Distress: The Role of Bribery, Corruption, and Fraud in FTSE All-Share Companies," Risks, MDPI, vol. 13(3), pages 1-19, February.
    • Handle: RePEc:gam:jrisks:v:13:y:2025:i:3:p:41-:d:1598339
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    References listed on IDEAS

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    2. Valta, Philip, 2016. "Strategic Default, Debt Structure, and Stock Returns," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 51(1), pages 197-229, February.
    3. Goss, Allen & Roberts, Gordon S., 2011. "The impact of corporate social responsibility on the cost of bank loans," Journal of Banking & Finance, Elsevier, vol. 35(7), pages 1794-1810, July.
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