Tanvir Bhuiyan

Purpose
This study investigates the impact of Environmental, Social, Governance (ESG) overall score and its pillars on firm risk and the mediating role of earnings management.

Design/methodology/approach
The research applies Generalised Method of Moments (GMM) regression to address endogeneity in a panel of Australian-listed firms from 2014 to 2023.

Findings
The findings reveal that higher ESG scores are associated with lower firm risk, with governance and social pillars exerting the most substantial immediate effects. In contrast, the environmental pillar demonstrates a delayed risk-reducing impact, reflecting long-term benefits rather than short-term volatility reduction. Moreover, the study identifies earnings management as a significant mediator that partially offsets ESG's stabilising effects, highlighting that firms with strong ESG practices are less likely to engage in accrual-based earnings management, thus reducing risk.

Practical implications
These findings have critical implications for investors, regulators, and policymakers. They underscore the importance of pillar-level ESG evaluation, long-term orientation in environmental assessments, and integrating financial transparency into ESG frameworks.

Originality/value
This study contributes to the extant knowledge of ESG overall and the individual pillar effect on firm risk in Australian companies, highlighting the mediating role of earnings management (EM). By identifying earnings management as a partial mediating mechanism, the study extends agency and stakeholder theories beyond direct ESG–firm risk association through the lens of financial reporting behaviour. This integrated framework bridges sustainability and earnings management literatures, offering a more comprehensive theoretical understanding of how ESG performance is related to firm risk.

This study examines the relationship between greenwashing and firm risk among listed Australian firms from 2014 to 2023. We construct a firm-level greenwashing score as the residual based on regressions of composite ESG on Scope 1–2 CO2 emissions; positive residuals indicate overstated sustainability relative to emissions. Using realized volatility as a measure of firm risk and applying the Generalized Method of Moments (GMM) regression framework, we uncover three key findings. First, contemporaneous greenwashing significantly lowers volatility, which is consistent with legitimacy and signalling theory, as overstated ESG credentials create a temporary perception of stability. Second, the risk-reducing effect is strongest with a one-period lag, likely reflecting delayed ESG and emissions reporting cycles and investor reaction times. Third, by the two-period lag, the effect reduces in magnitude, suggesting that markets eventually recognize the misalignment between ESG claims and environmental performance. Robustness checks with the E-pillar confirm these dynamics. Additional tests excluding the COVID-19 period (2020 and 2021) reveal that the risk-mitigating effects of greenwashing are even stronger during normal market conditions, implying that pandemic-related volatility may have muted the signalling power of ESG narratives. While firm fundamentals (e.g., book-to-market) explain part of risk variation, greenwashing-driven effects are economically meaningful yet short-lived. The findings underscore that greenwashing offers only temporary risk mitigation; as transparency improves and regulatory enforcement strengthens, firms relying on inflated ESG narratives face diminishing benefits and potential long-term risk penalties.

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.

This study examines the relationship between crude oil returns (CRT) and Islamic stock returns (ISR) in BRIC countries during the Global Financial Crisis (GFC), employing wavelet-based comovement analysis and regression models that incorporate both contemporaneous and lagged CRT across 40 cases. The wavelet analysis reveals strong long-term comovement at low frequencies between ISR and CRT during the GFC. Contemporaneous regressions show that increases (decreases) in CRT align with corresponding movements in ISR. Lagged regressions indicate that CRT can predict ISR up to one week ahead for Brazil, Russia, and China, and up to two weeks for India, although the predictive strength weakens beyond this window. These findings challenge the perception that Islamic stocks were immune to the GFC, showing they were affected by global oil market dynamics, albeit with varying degrees of resilience across countries and time horizons.

Challenging the perceived immunity of Islamic stocks to the global financial crisis, this research investigates whether there was any coherence and long-run cointegration between Islamic stocks of BRIC countries and S&P 500 options implied volatility smirk (IVS) in BRIC countries during the global financial crisis (GFC). Employing Engle–Granger and Johansen’s cointegration tests along with wavelet coherence analysis, this study reveals significant long-run cointegration and both short-term and long-term wavelet coherence between IVS and Islamic stock returns (ISRs). Since the S&P 500 options IVS is a reliable indicator of GFC in the context of the conventional stock market, the cointegration and coherence between ISRs and IVS indicate the susceptibility of ISRs to market contagion during the GFC. These findings challenge the notion of Islamic stocks as a safe haven during financial crises, showing their susceptibility to market downturns similar to conventional stocks.

This study analyses the presence of implied volatility smirk (IVS) and its predictability of the US stock market crash during the Global Financial Crisis (GFC) through the in-sample and out-of-sample tests. The in-sample investigation was conducted for 18 cases (cases 1–18) to confirm the development of IVS during GFC (2007–2009). It also examined another 18 cases (cases 19–36) to ensure the absence of the IVS in the post-GFC period (2010–2011). Finally, an out-of-sample test analysed 63 cases (cases 37–99) to assess the predictability of IVS for the stock market crash during the GFC. The study reveals several critical findings. The in-sample test results show the negative return from simultaneous trading of out-of-the-money put options (OTMP) and at-the-money call options (ATMC) due to out-of-the-money put options implied volatility (OTMPIV) is higher than at-the-money call options implied volatility (ATMCIV) for all 18 cases (cases 1–18), confirming the development of IVS during GFC. However, findings of the in-sample test for cases 19–36 reveal the positive return from simultaneous trading of OTMP and ATMC because of the lower value of OTMPIV compared to ATMCIV, ensuring no occurrence of IVS in the post-GFC period. Finally, only 13 out of 63 cases (from cases 37–99) under the out-of-sample test show the IVS can forecast negative returns in an abnormal stock market. Further, the predictability of IVS for the US stock market crash depends on the maturity of options, forecast horizon, and options trading period