Environmental, social and governance disclosure and default risk

Muhammad Atif*, Searat Ali

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

27 Citations (Scopus)


We investigate whether environmental, social and governance (ESG) disclosure is related to default risk. Using a sample of US nonfinancial institutions from 2006 to 2017, we find that ESG disclosure is positively related to Merton's distance to default and is negatively related to the credit default swap spread, which suggests that firms with a higher ESG disclosure have lower default risk. Our analysis further indicates that the inverse effect of ESG disclosure on default risk is through increased profitability and reduced performance variability and cost of debt. We also document that the negative impact of ESG disclosure on default risk is existent only for mature and older firms. These results are important for all stakeholders of firms, including shareholders and bondholders to consider firm's ESG disclosure in conjunction with life cycle stage before making their investment decisions.
Original languageEnglish
Pages (from-to)3937-3959
Number of pages23
JournalBusiness Strategy and the Environment
Issue number8
Early online date14 Jun 2021
Publication statusPublished - Dec 2021


  • corporate life cycle
  • cost of debt
  • default risk
  • ESG disclosure
  • performance variability


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