Abstract
This study examines the relationship between financial distress and environmental, social, and governance (ESG) disclosure. We hypothesize that financially distressed firms are tempted to enhance ESG disclosure as it provides higher performance in terms of financial and market perspectives. ESG disclosure needs substantial resources, which financially distressed firms may not be able to provide. In Indonesian settings, we find that financially distressed firms have lower ESG disclosure quality than non-distressed firms. Our results are robust due to lagged variable, Heckman’s two stages, and coarsened exact matching regression showing consistent results. Furthermore, our results are consistent with three years of rolling windows of financial distress and all sections of ESG reporting, except the general information section. This study extends the scope of prior studies by focusing on firms’ eagerness to provide higher quality ESG disclosure, particularly distressed firms.
Highlights
Sustainability 2021, 13, 10156. https://Mounting studies examine the impact of ESG reporting on firms, on firm performance [1,2,3,4,5,6]
It shows that the highest proportion of financially distressed firms is the services industry
A massive growth of literature documents the beneficiaries of ESG reporting for the firms [1] as they join in a global alliance to make a better future for everyone
Summary
Sustainability 2021, 13, 10156. https://Mounting studies examine the impact of ESG (environmental, social, and governance) reporting on firms, on firm performance [1,2,3,4,5,6]. Some studies find a negative relationship between ESG reporting and firm performance [8,9,10] Their argument is based on the fact that ESG-oriented firms that need to show their ESG commitment commonly sacrifice their financial resources, and at the same time are not desired by all the stakeholders [11]. These findings show that the benefits of ESG reporting (or investments) may not be felt in all circumstances [12]. Questions such as whether ESG reporting works out in firms’ current conditions or whether ESG reporting is a solution for firms, are commonly raised by management
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