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Mandatory corporate ESG disclosure and default risk – Evidence from China

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  • Li, Wei-An
  • Du, Hanyu
  • He, Feng

Abstract

Investigating the potential benefits of corporate Environmental, Social and Governance (ESG) disclosure for corporate governace and business resilience is imperative. Using a sample of publicly listed companies in China from 2006 to 2020, this paper uses a difference-in-differences (DID) design to investigate the impact of corporate ESG disclosure on its default risk. We find that corporate ESG information disclosure could significantly reduce default risk. This relationship is mediated through information communication, internal governance and external monitoring mechanisms. This finding is robust to a series of tests, including a parallel trend test, a PSM-DID design, a placebo test and alternative default risk calculations. ESG disclosure does not significantly affect a company's stock return but also significantly reduce its stock price volatility and enhance stock liquidity. We show that corporate engagement and disclosure of ESG activity could promote corporate governance and sustainable development.

Suggested Citation

  • Li, Wei-An & Du, Hanyu & He, Feng, 2025. "Mandatory corporate ESG disclosure and default risk – Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 89(C).
    • Handle: RePEc:eee:pacfin:v:89:y:2025:i:c:s0927538x24003305
    DOI: 10.1016/j.pacfin.2024.102578
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    More about this item

    Keywords

    Corporate governance; ESG; Default risk; Information disclosure;
    All these keywords.

    JEL classification:

    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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