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Environmental controversies, environmental fines and firms’ default risk

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  • Cosma, Simona
  • Rimo, Giuseppe
  • Schwizer, Paola

Abstract

This paper aims to provide empirical evidence on the unexplored relationship between environmental controversies, environmental fines, and firms' default risk, as well as to test whether this relationship changes with firms' level of environmental commitment or the country's environmental awareness. Using a sample of 402 global firms over ten years, we show that an increase in environmental controversies, and thus greater media exposure of firms for environmental damage, increases firms' risk of default. Instead, environmental fines do not significantly influence default risk. Our results also point out that the effect of environmental controversies on default risk is heterogeneous: it is significant exclusively for firms with a higher environmental commitment to reducing carbon emissions and headquartered in countries with greater environmental attention. Our results present several implications for firms, policymakers, and financial institutions.

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  • Cosma, Simona & Rimo, Giuseppe & Schwizer, Paola, 2025. "Environmental controversies, environmental fines and firms’ default risk," Research in International Business and Finance, Elsevier, vol. 77(PA).
    • Handle: RePEc:eee:riibaf:v:77:y:2025:i:pa:s0275531925001667
    DOI: 10.1016/j.ribaf.2025.102910
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    JEL classification:

    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • Q57 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Ecological Economics

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