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Environmental controversies, environmental fines and firms’ default risk

Year: 2025

Type: article

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. • Environmental controversies (ECs) refer to firms' negative impacts on the environment. • ECs significantly increase default risk. • Environmental fines (EFs) do not significantly impact default risk. • The effect of ECs is exclusive for firms committed in reducing carbon emissions. • ECs do not impact firms headquartered in countries with low environmental awareness.

Source: Research in International Business and Finance

DOI: 10.1016/j.ribaf.2025.102910

Authors: Simona Cosma, Giuseppe Rimo, Paola Schwizer

Institutions: University of Bologna, University of Salento, University of Parma

Language: English

Topic: Corporate Social Responsibility Reporting

Subfield: Strategy and Management

Field: Business, Management and Accounting

Domain: Social Sciences

SDGs: Climate action, Peace, justice, and strong institutions, Responsible consumption and production

Open Access status: hybrid

Estimated APC paid: $3,820