ESG Prioritization: The Impact of Sustainability on Mitigating Bankruptcy Risk
Journal
Strategic Change
ISSN
1086-1718
ISSN-Digital
1099-1697
Type
journal article
Date Issued
2025-04-04
Author(s)
Abstract
This research analyzes the intricate dynamics of how ESG factors influence bankruptcy likelihood within global listed companies. Utilizing a comprehensive dataset and a combination of fixed effect models along with a machine learning technique, the study confirms the assertion that corporations with robust corporate social responsibility practices are less likely to incur bankruptcy. The findings align with the stakeholder theory, advocating for companies to accord importance to all stakeholders' interests. Intriguingly, all three dimensions of ESG demonstrate a positive overall influence on the Z-Score, emphasizing their financial significance. However, a complexity emerges: while ESG positively impacts a company's Z-Score in the short term, this effect may disappear over longer time periods except for the governance factor which retains lasting relevance. Notably, workforce management, emissions control, and efficient overall management surface as critical variables in diminishing bankruptcy likelihood. This research underscores the intricate relationship between ESG and financial performance, highlighting the need for companies to prioritize authentic and enduring ESG initiatives harmonized with their strategic objectives and values, to foster stakeholder trust and promote long-term financial stability.
Language
English
Keywords
corporate governance
ESG
machine learning
sustainability
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
Wiley
Volume
34
Number
6
Start page
793
End page
811
Subject(s)
Division(s)