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ESG Adoption and Corporate Risk-Taking

In: ESG Strategies and Financial Markets

Author

Listed:
  • Jianrong Wang

    (East China Normal University, Asia Europe Business School, Shanghai International School of Chief Technology Officer)

Abstract

This chapter analyzes how Environmental, Social, and Governance (ESG) practices shape corporate risk-taking and firm risk, then centers on liquidity risk as a critical but underexplored dimension. Classical views tie risk-taking to agency costs, managerial incentives, and financing frictions. ESG adds a layer that can both mitigate and reallocate risk. Evidence links stronger ESG or corporate social performance to lower idiosyncratic, systematic, credit, and crash risk through moral capital, transparency, and improved stakeholder relations. Yet ESG is not uniformly risk-reducing. Symbolic initiatives and strategic misalignment can distort incentives, fuel overconfidence, or push firms toward exploratory R&D that raises exposure. Effects are heterogeneous across risk types: market beta may fall with reduced tail exposure; liquidity risk can ease via better creditor access and stable funding; operational risk can decline through safer environmental and labor practices; legal and regulatory risk can drop under stronger governance and compliance; reputational risk can attenuate with credible disclosure.Building on these mechanisms, the chapter presents ESG and Firm Liquidity Risk: U.S. Evidence. Using firm-level data, it tests whether higher ESG performance is associated with lower liquidity risk by strengthening stakeholder trust, deepening creditor relationships, and improving capital-market access. It examines heterogeneity across E, S, and G pillars and contrasts constrained versus unconstrained liquidity environments. By linking mechanisms to outcomes, the chapter shows how ESG can move beyond ethical signaling to materially bolster resilience against liquidity shocks and refinancing pressure.

Suggested Citation

  • Jianrong Wang, 2026. "ESG Adoption and Corporate Risk-Taking," Management for Professionals, in: ESG Strategies and Financial Markets, chapter 6, pages 123-150, Springer.
    • Handle: RePEc:spr:mgmchp:978-981-95-5620-5_6
    DOI: 10.1007/978-981-95-5620-5_6
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