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Financially Distressed Firms: Environmental, Social, and Governance Reporting in Indonesia

Author

Listed:
  • Iman Harymawan

    (Department of Accounting, Faculty of Economic and Business, Universitas Airlangga, Surabaya 60115, East Java, Indonesia)

  • Fajar Kristanto Gautama Putra

    (Department of Accounting, Faculty of Economic and Business, Universitas Airlangga, Surabaya 60115, East Java, Indonesia)

  • Bayu Arie Fianto

    (Department of Islamic Economics, Faculty of Economic and Business, Universitas Airlangga, Surabaya 60115, East Java, Indonesia)

  • Wan Adibah Wan Ismail

    (Faculty of Accountancy, Universiti Teknologi Mara, Kedah 08400, Malaysia)

Abstract

This study examines the relationship between financial distress and environmental, social, and governance (ESG) disclosure. We hypothesize that financially distressed firms are tempted to enhance ESG disclosure as it provides higher performance in terms of financial and market perspectives. ESG disclosure needs substantial resources, which financially distressed firms may not be able to provide. In Indonesian settings, we find that financially distressed firms have lower ESG disclosure quality than non-distressed firms. Our results are robust due to lagged variable, Heckman’s two stages, and coarsened exact matching regression showing consistent results. Furthermore, our results are consistent with three years of rolling windows of financial distress and all sections of ESG reporting, except the general information section. This study extends the scope of prior studies by focusing on firms’ eagerness to provide higher quality ESG disclosure, particularly distressed firms.

Suggested Citation

  • Iman Harymawan & Fajar Kristanto Gautama Putra & Bayu Arie Fianto & Wan Adibah Wan Ismail, 2021. "Financially Distressed Firms: Environmental, Social, and Governance Reporting in Indonesia," Sustainability, MDPI, vol. 13(18), pages 1-18, September.
    • Handle: RePEc:gam:jsusta:v:13:y:2021:i:18:p:10156-:d:633134
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    3. Yin Shi & Xiaoni Li & Maher Asal, 2023. "Impact of sustainability on financial distress in the air transport industry: the moderating effect of Asia–Pacific," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-23, December.
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    6. Thamir Al Barrak & Kaouther Chebbi & Abdullah A. Aljughaiman & Mohammed Albarrak, 2023. "Exploring the Interplay between Sustainability and Debt Costs in an Emerging Market: Does Financial Distress Matter?," Sustainability, MDPI, vol. 15(12), pages 1-19, June.
    7. Wadhaah Ibrahim Almubarak & Kaouther Chebbi & Mohammed Abdullah Ammer, 2023. "Unveiling the Connection among ESG, Earnings Management, and Financial Distress: Insights from an Emerging Market," Sustainability, MDPI, vol. 15(16), pages 1-23, August.
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