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Journal article
Exploring Governance Failures in Australia: ESG Pillar-Level Analysis of Default Risk Mediated by Trade Credit Financing
Journal of Risk and Financial Management, Vol.18(8), 464
2025
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
- Title
- Exploring Governance Failures in Australia: ESG Pillar-Level Analysis of Default Risk Mediated by Trade Credit Financing
- Authors/Creators
- Thuong Thi LeTanvir Bhuiyan - Murdoch University, College of BusinessThi Le - Murdoch University, College of BusinessAriful Hoque - Murdoch University, College of Business
- Publication Details
- Journal of Risk and Financial Management, Vol.18(8), 464
- Publisher
- MDPI
- Identifiers
- 991005807950307891
- Copyright
- © 2025 by the authors.
- Murdoch Affiliation
- Murdoch University; College of Business
- Resource Type
- Journal article
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