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How does ESG affect systemic tail risk?

Author

Listed:
  • Liu, Xiaoxing
  • Wu, Yizhong
  • Li, Xuemei

Abstract

In the context of sustainable development, the Environmental, Social, and Governance (ESG) terms are an important way to resist fluctuations in financial markets. This study explores the effects of ESG on systemic tail risk. This study finds that ESG can significantly decrease the level of corporate systemic tail risk. The heterogeneity analysis shows that the restraining impact is more obvious in non-state-owned enterprises, enterprises with higher financing constraints, and industries with lower levels of competition. Additionally, this study discuss the channel mechanism of ESG on systemic tail risk in enterprises from both internal and external perspectives. In terms of internal perspectives, the increase in ESG rating will inhibit agency cost and risk-taking levels. In terms of external perspectives, ESG will enhance the level of supply chain diversification and institutional investor shareholding ratio. This paper reveals the mechanism and effective path of corporate systemic tail risk in the sustainable development economy.

Suggested Citation

  • Liu, Xiaoxing & Wu, Yizhong & Li, Xuemei, 2025. "How does ESG affect systemic tail risk?," International Review of Financial Analysis, Elsevier, vol. 103(C).
    • Handle: RePEc:eee:finana:v:103:y:2025:i:c:s1057521925002790
    DOI: 10.1016/j.irfa.2025.104192
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    Keywords

    Systemic tail risk; ESG; Internal channels; External channels;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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