Logo image
Back
Exploring Governance Failures in Australia: ESG Pillar-Level Analysis of Default Risk Mediated by Trade Credit Financing
Journal article   Open access   Peer reviewed

Exploring Governance Failures in Australia: ESG Pillar-Level Analysis of Default Risk Mediated by Trade Credit Financing

Thuong Thi Le, Tanvir Bhuiyan, Thi Le and Ariful Hoque
Journal of Risk and Financial Management, Vol.18(8), 464
2025
DOI: https://doi.org/10.3390/jrfm18080464
pdf
Published483.79 kBDownloadView
CC BY V4.0,  Open Access

Abstract

This study examines the impact of overall Environmental, Social, and Governance (ESG) performance and its pillars on the default probability of Australian-listed firms. Using a panel dataset spanning 2014 to 2022 and applying the Generalized Method of Moments (GMM) regression, we find that firms with higher ESG scores exhibit a significantly lower likelihood of default. Disaggregating the ESG components reveals that the Environmental and Social pillars have a negative association with default risk, suggesting a risk-mitigating effect. In contrast, the Governance pillar demonstrates a positive relationship with default probability, which may reflect potential greenwashing behavior or an excessive focus on formal governance mechanisms at the expense of operational and financial performance. Furthermore, the analysis identifies trade credit financing (TCF) as a partial mediator in the ESG–default risk nexus, indicating that firms with stronger ESG profiles rely less on external short-term financing, thereby reducing their default risk. These findings provide valuable insights for corporate management, investors, regulators, and policymakers seeking to enhance financial resilience through sustainable practices.

Details

Metrics

229 File views/ downloads
28 Record Views
Logo image