Lohmann, Ch is ian; Möllenho , S e en; Lehne , Sebas ian
A icle — Published Ve sion
On he Rela ionship Be ween Financial Dis ess and ESG
Sco es
Co po a e Social Responsibili y and En i onmen al Managemen
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Sugges ed Ci a ion: Lohmann, Ch is ian; Möllenho , S e en; Lehne , Sebas ian (2025) : On he
Rela ionship Be ween Financial Dis ess and ESG Sco es, Co po a e Social Responsibili y and
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Co po a e Social Responsibili y and En i onmen al Managemen
REVIEW ARTICLE OPEN ACCESS
On he Rela ionship Be ween Financial Dis ess and
ESG Sco es
Ch is ianLohmann1 | S e enMöllenho 1,2 | Sebas ianLehne 1,3
1Schumpe e School o Business and Economics, Uni e si y o Wuppe al, Wuppe al, Ge many | 2neXDos GmbH, Munich, Ge many | 3In esco Asse
Managemen Deu schland GmbH, F ank u am Main,Ge many
Co espondence: Ch is ian Lohmann ([email protected] al.de)
Recei ed: 3 Ap il 2025 | Re ised: 4 June 2025 | Accep ed: 11 June 2025
Keywo ds: ESG| ESG sco e| inancial dis ess| nonpa ame ic eg ession| sha eholde - s akeholde o ien a ion
ABSTRACT
This empi ical s udy analyzes he ela ionship be ween a company's inancial dis ess ob ained om a bank up cy p edic ion
model and ESG sco es om Re ini i , MSCI, ESG Book, and Moody's ESG. Applying a nonpa ame ic eg ession echnique
on panel da a o lis ed US companies o 2003–2022 e eals a p onounced and s a is ically signi ican U- shaped ela ionship
be ween inancial dis ess and ESG sco es. Financially dis essed companies exhibi high ESG sco es. Fu he empi ical anal-
ysis shows ha he mos plausible in e p e a ion is ha companies an icipa e hei upcoming inancial dis ess and in ensi y
ESG- suppo ing disclosu es o manage hei ESG sco es upwa d. The empi ical esul s unde line he impo ance o including
he inancial heal h o a company in ESG assessmen s. Only by aking in o accoun bo h he ESG pe o mance and he inancial
sus ainabili y o a company is i possible o assess esponsible co po a e go e nance.
JEL Classi ica ion: C33, G33, M41, Q56
1 | In oduc ion
The e is an ongoing deba e on he in o ma i eness o ESG
sco es ha measu e he ESG ac i i ies o a company. This de-
ba e also includes he e ec i e ela ionship be ween a compa-
ny's inancial pe o mance and ESG sco es. The eby, he la e
cons uc ed by a ious ESG a ing agencies a e used in business
o in o m ope a ional co po a e and long- e m in es men deci-
sions (e.g., in es men decisions by ESG unds; Raghunandan
and Rajgopal2022) and in science o empi ical esea ch. The
p esen s udy con ibu es o his esea ch line by in oducing he
measu e o bank up cy isk as a new a iable ela ed o ESG
sco es. The measu e o bank up cy isk is he esul o a bank-
up cy p edic ion model and indica es he le el o a company's
inancial dis ess. The p esen s udy analyzes he e ec i e e-
la ionship be ween he measu e o bank up cy isk and ESG
sco es om Re ini i , MSCI, ESG Book, and Moody's ESG by
applying a nonpa ame ic eg ession echnique on panel da a o
lis ed US companies om 2003 o 2022.
The analysis e eals a p onounced and s a is ically signi ican
U- shaped ela ionship be ween he le el o inancial dis ess and
ESG sco es a he company le el. An inc ease in he measu e
o bank up cy isk abo e a ce ain h eshold is associa ed wi h
inc easing ESG sco es. As a esul , inancially dis essed com-
panies exhibi ESG sco es compa able o ESG sco es om inan-
cially heal hy companies. This empi ical inding is obus as i
is obse able ac oss he ou di e en ESG sco es om Re ini i ,
MSCI, ESG Book, and Moody's ESG. Howe e , one challenge
o he analysis is o iden i y su icien ly s ong e idence o he
causali y be ween inancial dis ess and ESG sco es. We ad-
d ess conce ns ela ed o e e se causali y by applying a se o
al e na i e a iables. Based on ou analysis, he mos plausible
explana ion o he obse ed U- shaped ela ionship be ween
inancial dis ess and ESG sco es is ha companies an icipa e
inancial dis ess and ocus on cos - e ec i e ESG ac i i ies, such
as ESG- suppo ing disclosu es, o inc ease hei ESG sco es. We
add o he exis ing li e a u e by showing ha managing ESG
sco es by he g oup o inancially dis essed companies educes
This is an open access a icle unde he e ms o he C ea i e Commons A ibu ion License, which pe mi s use, dis ibu ion and ep oduc ion in any medium,
p o ided he o iginal wo k is p ope ly ci ed.
© 2025 The Au ho (s). Co po a e Social Responsibili y and En i onmen al Managemen published by ERP En i onmen and John Wiley & Sons L d.
6378 Co po a e Social Responsibili y and En i onmen al Managemen , 2025
he alidi y and c edibili y o ESG sco es and makes hem less
eliable. The e o e, i is impe a i e o conside a company's i-
nancial si ua ion when in e p e ing ESG sco es.
The empi ical indings o da e documen a nega i e linea ela-
ionship be ween he le el o inancial dis ess and ESG sco es
(e.g., Zheng e al.2019; Boubake e al.2020; Aslan e al.2021;
Badayi e al. 2021; T uong e al. 2025). These empi ical ind-
ings suppo wo lines o a gumen ha pos ula e a nega i e
linea ela ionship be ween he le el o inancial dis ess and
ESG sco es. The i s line o a gumen is ha inancially un-
cons ained companies ha e mo e inancial esou ces han
inancially cons ained companies o pu sue ESG objec i es
and in es in p ojec s demons a ing co po a e goodness. The
second line o a gumen ela es o he p edominan ly posi i e
ela ionship be ween inancial pe o mance and he ESG ac i -
i ies o a company. I inc easing inancial dis ess o a company
is gene ally associa ed wi h lowe inancial pe o mance, he e
should be a nega i e ela ionship be ween he le el o inancial
dis ess and ESG sco es.
Howe e , he p e ious esul s ha show a consis en ly nega i e
ela ionship be ween he le el o inancial dis ess and ESG
sco es a e only eliable o a limi ed ex en as hese s udies (e.g.,
Zheng e al.2019; Boubake e al.2020; Aslan e al.2021; Badayi
e al.2021; T uong e al.2025) exclusi ely use linea eg ession
echniques and hus exclude a possible nonlinea ela ionship in
he da a om he ou se al hough he e a e h ee good easons
o a leas a pa ially posi i e ela ionship in he case o inan-
cially dis essed companies. Fi s , inancially dis essed compa-
nies ha e a solid in e es in achie ing high ESG sco es o ob ain
equi y and deb capi al a ela i ely low cos as hey ely on he
low cos o capi al o a oid o a leas delay bank up cy. Second,
inancially dis essed companies may conceal in o ma ion
abou he company's ailu es and oppo unis ically pu sue ESG
objec i es o dis ac om hei inancial dis ess. Thi d, he in-
acompany incen i e sys em may se incen i es o achie e ESG
objec i es a he han inancial ones ha a e pa icula ly di i-
cul o achie e in he case o inancially dis essed companies.
To iden i y he e ec i e and un es ic ed ela ionship be ween
he le el o inancial dis ess and ESG sco es, a comp ehensi e
empi ical s udy has o apply a nonpa ame ic eg ession ech-
nique o he a ailable panel da a.
The in e p e a ion o he e ealed U- shaped ela ionship be-
ween he le el o inancial dis ess and ESG sco es has o ad-
d ess he p oblem o e e se causali y (Gow e al.2016). On he
one hand, inancial dis ess could be he cause, and a high ESG
sco e could be he e ec . In his case, one in e p e a ion could be
ha inancially dis essed companies in ensi y ESG- suppo ing
disclosu es and manage hei ESG sco es upwa d, e y likely o
dec ease he cos o capi al, imp o e he inancial condi ions,
and dis ac om hei inancial ailu e. Ano he eason o ha
obse a ion could be he incen i e sys em and he desi e o man-
agemen o inc ease pe sonal bene i s by achie ing s akeholde -
o ien ed ESG objec i es a he han sha eholde - o ien ed
inancial objec i es. On he o he hand, measu es ha lead o a
high ESG sco e could be he cause, and inancial dis ess could
be he inancial consequence o hese measu es. Such a ela-
ionship would be mo e likely o be obse ed wi h ESG in es -
men s, which ha e a g ea e impac on cash lows and co po a e
inances, han ope a ional measu es o ESG- suppo ing disclo-
su es. We na owed down he p oblem o e e se causali y by
conduc ing se e al ex ensions o empi ical analysis.
Based on he esul s o he empi ical analysis, he mos plausible
in e p e a ion o he e ealed U- shaped ela ionship be ween
he le el o inancial dis ess and ESG sco es is ha companies
an icipa e hei upcoming inancial dis ess and in ensi y cos -
e ec i e ESG ac i i ies such as ESG- suppo ing disclosu es o
manage hei ESG sco es upwa d. This in e p e a ion is also
consis en wi h empi ical indings ha emphasize he impo -
ance o he quan i y o ESG disclosu es and conside he con-
en o hese ESG disclosu es o be o seconda y impo ance
(Lyon and Maxwell2011; Ma quis e al.2016). ESG sco es a e
p esumably in luenced o a g ea e ex en by he exis ence o
ESG disclosu es and less by hei con en (D empe ic e al.2020;
Lopez- de- Silanes e al.2020). ESG sco es a e also enhanced by
excessi e and o e - expec an disclosu es on di e si y, equi y,
and inclusion (Bake e al.2024), and ESG unds pay mo e a en-
ion o he exis ence and less o he con en o ESG disclosu es
(Raghunandan and Rajgopal2022). The empi ically obse able,
sys ema ic managemen o ESG sco es by he g oup o inan-
cially dis essed companies makes i impe a i e o conside he
deg ee o a company's inancial dis ess when in e p e ing ESG
sco es.
The pape is s uc u ed as ollows: In he nex sec ion, we p o-
ide an o e iew o he li e a u e and cla i y he a gumen s in
a o o a nega i e and posi i e ela ionship be ween inancial
dis ess and ESG sco es. On he basis o hese a gumen s, we
o mula e a hypo hesis ha is subsequen ly es ed empi ically.
In Sec ion3, we p o ide de ails on he applied da a and desc ibe
he a iables used o he main analysis. Sec ion4 p esen s he
empi ical esul s on he es ima ed nonlinea ela ionship be-
ween he le el o inancial dis ess and ESG sco es. This sec ion
also includes insigh s in o he h ee ESG sub ac o s and applied
con ol a iables. In Sec ion5, we ex end he empi ical analy-
sis o add ess he p oblem o e e se causali y and discuss he
obus ness o he esul s. Sec ion6 concludes he pape wi h an
o e iew o ou indings and discusses he implica ions o he
esul s.
2 | Li e a u e Re iew
The analysis o he ela ionship be ween inancial dis ess and
ESG sco es e e s o wo s ands o li e a u e. The i s s and o
li e a u e ela es o he cons uc ion and signi icance o he mea-
su e o bank up cy isk. Powe ul, empi ical bank up cy p edic-
ion models (e.g., Bea e e al.2005; Balcaen and Ooghe2006;
Bello a y e al.2007; Campbell e al.2008; Jones2017; Lohmann
e al. 2023) can alidly es ima e he measu e o bank up cy
isk. In con as o pe iodic accoun ing indica o s, such as e-
u n on equi y and e u n on asse s, and alue- based indica o s,
such as ma ke alue o equi y, he measu e o bank up cy isk,
which includes a la ge se o accoun ing- based, ma ke - based,
company- speci ic, and mac oeconomic a iables, enables a alid
and obus es ima ion o a company's inancial si ua ion. The
measu e o bank up cy isk is a o wa d- looking indica o as i
p edic s an impending bank up cy wi hin he o ecas ho izon
o he bank up cy p edic ion model. Empi ical indings show
6379
ha p o essional in es o s likely apply bank up cy p edic ion
models o op imize hei isk posi ion as p o essional in es o s
sell he sha es o inancially dis essed companies ha ile o
bank up cy a an ea ly s age and e ain he sha es o inancially
dis essed pee companies ha emain sol en (Lohmann and
Möllenho 2023a). As a esul , he measu e o bank up cy isk
is e y well sui ed o measu ing he sus ainable inancial si ua-
ion o a company and, hus, making a alid s a emen abou i s
con inued exis ence.
The second s and o li e a u e ela es o he ela ionship be-
ween inancial dis ess and ESG sco es and he a gumen s in
a o o a nega i e o posi i e ela ionship. The empi ical ind-
ings o da e documen a nega i e linea ela ionship be ween i-
nancial dis ess and ESG sco es. Pa icula ly, Zheng e al.(2019)
show a nega i e ela ionship be ween he Z sco e and he ESG
sco e om MSCI, Boubake e al.(2020) show a nega i e ela-
ionship be ween he Z sco e and measu e o co po a e social
esponsibili y (CSR) ha is based on he quali a i e dimensions
o he MSCI ESG index, Aslan e al.(2021) show a nega i e e-
la ionship be ween he S&P C edi Ra ing and he ESG sco e
om Re ini i , Badayi e al. (2021) show a nega i e ela ion-
ship be ween he Z sco e and he ESG sco e om Re ini i , and
T uong e al.(2025) show a nega i e ela ionship be ween he
Z sco e and he ESG a ing om MSCI. Lisin e al.(2022) and
Cohen (2023) p o ide u he empi ical e idence on nega i e
and mixed co ela ions be ween a company's inancial dis ess
and ESG sco es. Howe e , he in o ma i eness o he ci ed em-
pi ical s udies is limi ed, as hey only use one ESG sco e and
less de eloped bank up cy isk measu es such as he Z sco e and
apply linea eg ession echnique o analyze olde da ase s ha
a e smalle in size and do no include i m- yea obse a ions
om mo e ecen yea s. Ne e heless, he empi ical indings
on a nega i e linea ela ionship be ween inancial dis ess and
ESG sco es can be jus i ied by wo lines o a gumen .
The i s line o a gumen e e s o he inancial cons ain s o
a company. A nega i e ela ionship be ween inancial dis ess
and ESG sco es is expec ed o inancially cons ained compa-
nies. Hong e al.(2012) and Xu and Taehyun(2022) ind ha
inancially uncons ained companies ha e mo e esou ces han
inancially cons ained ones o pu sue social and en i onmen-
al objec i es and in es in p ojec s showing co po a e s a us. A
company in inancial dis ess should ha e se e e inancial con-
s ain s and will ha e less eely a ailable inancial esou ces o
in es in ESG- ela ed p ojec s. In addi ion, he e is empi ical e -
idence ha inancially dis essed companies p e e ope a ional
and in es men decisions ha place less s ain on he cu en
cash low and ha e a posi i e impac on sho - e m inancial
pe o mance indica o s (e.g., Eis eld and Rampini 2007; Ma
e al. 2022; Thomas e al. 2022). Such sho - sigh ed decisions
add ess he inancial cons ain s o a inancially dis essed com-
pany. ESG in es men s a e likely o be associa ed wi h unce -
ain ies ega ding hei impac on u u e cash lows and should
he e o e no be sui able o easing inancial cons ain s in he
sho e m. As a esul , sho - sigh ed decisions in he con ex o
inancial dis ess a e expec ed o be associa ed wi h an e ec i e
educ ion in ESG pe o mance.
The second line o a gumen e e s o he inancial pe o mance o
a company. Lowe inancial pe o mance is gene ally associa ed
wi h he inc easing inancial dis ess o a company. The ela-
ionship be ween a company's inancial pe o mance and ESG
sco es has been ex ensi ely s udied by applying p edominan ly
linea eg ession echniques. A signi ican ou - digi numbe o
indi idual s udies and o e a dozen me a- s udies (e.g., F iede
e al.2015; Del Ma Mi as- Rod íguez e al.2015; Hou e al.2016;
Lu and Taylo 2016; Wang e al.2016; Jeong and Ha ison2017;
Plewnia and Guen he 2017; Ros and Eh mann 2017; Busch
and F iede2018; Hooble e al.2018; López- A ceiz e al.2018;
Galla do- Vázquez e al.2019; Hang e al.2019; Vishwana han
e al.2020) ound a p edominan ly posi i e ela ionship be ween
he inancial pe o mance igu es, mainly including a iables
such as e u n on equi y, e u n on asse s, and ma ke alue o
equi y, and he ESG ac i i ies o a company, which we e e y
o en conside ed in ESG sco es' quan i ied o m. The posi i e
ela ionship be ween a company's inancial pe o mance and
hese sco es sugges s ha he e should also be a nega i e ela-
ionship be ween he le el o inancial dis ess and ESG sco es.
The empi ical e idence on he ela ionship be ween a company's
inancial pe o mance and ESG a ings is ambiguous and does
no allow o a clea in e p e a ion. P e ious s udies on his e-
la ionship apply linea eg ession models o a la ge ex en ; how-
e e , he es ima ed coe icien s luc ua e conside ably (e.g., he
me a- s udy o Del Ma Mi as- Rod íguez e al.2015) and some-
imes e en show a nega i e co ela ion (e.g., he me a- s udy o
Ros and Eh mann2017). In addi ion o using di e en samples
ha di e in coun y, ime, and company cha ac e is ics, an ex-
plana ion o hese only pa ially consis en esul s could be an
e ec i e nonlinea ela ionship be ween a company's inancial
pe o mance and ESG sco es. Howe e , he la e a e also incon-
clusi e as he e is empi ical e idence o a U- shaped ela ion-
ship (e.g., Nolle e al.2016; Nube e al.2020; Naimy e al.2021;
Aga wala e al. 2024) and an in e ed U- shaped ela ionship
(e.g., Buallay e al.2022; Teng e al.2022; El Khou y e al.2023;
Pu2023). As a esul , an e ec i e nonposi i e o nonlinea ela-
ionship be ween a company's inancial pe o mance and ESG
sco es may indica e an e ec i e nonnega i e o nonlinea ela-
ionship be ween inancial dis ess and ESG sco es.
Besides he empi ical a gumen s o a nega i e ela ionship be-
ween he le el o inancial dis ess and ESG sco es, he e a e
also h ee lines o a gumen ha can jus i y a posi i e ela ion-
ship. The i s line o a gumen is based on he empi ical obse -
a ion ha highe ESG sco es a e associa ed wi h a lowe cos o
capi al. Companies ha implemen he ESG p inciples and, in
pa icula , a e conside ed o be highly en i onmen ally iendly
can educe hei cos o capi al ela i e o en i onmen ally
ha m ul companies ha do no comply wi h ESG p inciples (e.g.,
Cha a2014; an de Beck2023; Pás o e al.2022; Kacpe czyk
and Peyd o2024; A on- Dine e al.2024; G een and Vallee2024).
The di e ence in he cos o capi al be ween complian and non-
complian ESG companies is di icul o es ima e; howe e , an
analysis o qua e ly ea nings con e ence calls o US companies
o he pe iod 2016–2021 e ealed ha he di e ence in he cos
o capi al could be in he ange o 2%–3% (Go msen e al.2023).
As inancially dis essed companies aim o keep he cos o cap-
i al as low as possible o ease inancial cons ain s o o a oid o
delay bank up cy, hey ha e a solid in e es in achie ing high
ESG sco es o ob ain equi y and deb capi al a ela i ely low
cos s. The nega i e ela ionship be ween ESG sco es and he
6380 Co po a e Social Responsibili y and En i onmen al Managemen , 2025
cos o capi al incen i izes inancially dis essed companies o
s i e o high ESG sco es. As a esul , he e could be a posi-
i e ela ionship be ween he le el o inancial dis ess and ESG
sco es, a leas o inancially dis essed companies ha ha e o
lowe hei cos o capi al o inc ease he p obabili y o su i al.
In a second line o a gumen , he “managemen ob usca ion
hypo hesis” suppo s a posi i e ela ionship be ween he le el
o inancial dis ess and ESG sco es. Bloom ield(2002) in o-
duced he managemen ob usca ion hypo hesis and a gued ha
manage s ha e incen i es o p o ide clea in o ma ion abou
he company's successes and o ob usca e in o ma ion abou he
company's ailu es. Se e al s udies p o ide empi ical e idence
ha he managemen ob usca ion hypo hesis is alid conce n-
ing in o ma ion on a company's pe o mance and ea nings
(e.g., Lang and Lundholm1993; DeFond and Jiambal o1994;
Sch and and Wal he 2000; Jaggi and Lee2002; Li2010). The
empi ical e idence on he managemen ob usca ion hypo hesis
is less conclusi e abou bank up cy isk in o ma ion in annual
epo s. Holde - Webb and Cohen(2007) doub ha he annual
epo s o inancially dis essed companies a e in o ma i e, as
sel - in e es ed manage s a e incen i ized o delay he disclosu e
o se e e isks o he con inued exis ence o hei company as
a going conce n. Mayew e al.(2015) analyzed a la ge sample
o lis ed US companies and ound ha he managemen ob us-
ca ion hypo hesis is la gely in alid. On he con a y, Lohmann
and Ohlige (2020) p o ided empi ical e idence ha suppo s i
as he annual epo s o companies ha e en ually wen bank-
up con ain, on a e age, longe and ela i ely mo e complex isk
epo s and gene ally exhibi a less nega i e linguis ic one han
he epo s o inancially dis essed companies ha emained
sol en . As imminen bank up cy isks a e complex and chal-
lenging o communica e (Bloom ield2008), he high linguis ic
complexi y may esul om bo h ob usca ion and complex in o -
ma ion (Bushee e al.2018).
Ano he op ion o ob usca e a company's inancial dis ess is o
ocus on disclosed in o ma ion abou non inancial ESG objec-
i es. I he company managemen pu sues ESG objec i es, inan-
cial objec i es become less c i ical. Co po a e go e nance and
moni o ing a ge achie emen a e complex, as ESG objec i es
a e o en quali a i e and can only be measu ed subjec i ely. The
inc eased complexi y o such a mul idimensional objec i e sys-
em could be use ul o dis ac om inancial objec i es o con-
ceal poo inancial pe o mance (Bebchuk and Talla i a2020;
Ka po 2021). As inancial dis ess moun s, he need o explain
complex inancial in o ma ion inc eases, unless he ocus can
be placed on ESG objec i es and hei achie emen . The e-
qui ed explana ion o inancial in o ma ion can be in e p e ed
as ansac ion cos s ha he company managemen aims o min-
imize. This a gumen is ein o ced by empi ical e idence on he
posi i e ela ionship be ween CSR and ESG ac i i ies and ea n-
ings managemen (e.g., Pa en and T ompe e 2003; Ga gou i
e al. 2010; Yip e al. 2011; Mu akin e al. 2015; Ma ínez-
Fe e o e al.2016; Jo daan e al.2018; Bue ey e al.2020; Yu
e al.2020; Pasko e al.2021; Zhang e al.2021) ha is in line
wi h he s akeholde agency heo y (Jensen and Meckling1976;
Hill and Jones1992). The eby, he posi i e ela ionship be ween
ESG ac i i ies and ea nings managemen is enhanced by a
company's inancial dis ess (Almuba ak e al.2023). Ano he
empi ical inding ha suppo s he alidi y o he managemen
ob usca ion hypo hesis is he ac ha he exis ence and scope
o ESG disclosu es a e pa icula ly ele an a he han he
eal ci cums ances e lec ed in he ESG disclosu es (Lyon and
Maxwell2011; Ma quis e al.2016; D empe ic e al.2020; Lopez-
de- Silanes e al.2020; Raghunandan and Rajgopal2022).
Recen ly, Flugum and Sou he (2025) analyzed he company
communica ion a e qua e ly ea nings epo s and p o ided
empi ical e idence ha he managemen dis ac s om miss-
ing ea ning expec a ions by highligh ing non inancial ESG ob-
jec i es. One conclusion migh be ha companies ha epo ,
pa icula ly, ex ensi ely on hei ESG ac i i ies and p io i ize
ESG objec i es in a publici y- e ec i e manne a e inancially
unde pe o ming (Bhaga 2022). I is concei able ha inan-
cially dis essed companies will also show an a ini y wi h ESG
objec i es o dis ac om hei inancial dis ess. As he inan-
cial esou ces o a inancially dis essed company a e likely o
be e y sca ce egula ly (Mye s1977), an imp o emen in ESG
sco es is mo e likely o esul om cos - e ec i e ex ensions
o ESG- suppo ing disclosu e a he han ESG in es men s,
which equi e up on capi al expendi u es and will only lead
o posi i e cash lows in he long e m. The eby, ex ensions o
ESG- suppo ing disclosu e should be e ec i e as ESG sco es a e
p esumably in luenced o a g ea e ex en by he exis ence o
ESG disclosu es and less by hei con en (D empe ic e al.2020;
Lopez- de- Silanes e al.2020) and in es o s such as ESG unds
ocus on he exis ence and less o he con en o ESG disclosu es
(Raghunandan and Rajgopal2022). Suppose he managemen
ob usca ion hypo hesis abou s akeholde - o ien ed ESG objec-
i es and associa ed ESG disclosu es is alid. In ha case, he e
should be a posi i e ela ionship be ween he le el o inancial
dis ess and ESG sco es, a leas o inancially dis essed com-
panies incen i ized o ob usca e hei inancial ailu e.
The hi d line o a gumen ela es o he in acompany incen-
i e sys em. In addi ion o inancial objec i es, ESG objec i es
a e also pu sued and implemen ed wi hin he in acompany in-
cen i e sys em, whe eby he design op ions a e s ill e y he e o-
geneous (Reda2022). Recen analyses show a g owing sha e o
lis ed US companies ha inco po a e ESG measu es in annual
incen i e plans (e.g., Salzbank e al.2023; Kuk e al.2023). A
company's managemen likely alloca es he a ailable esou ces
o maximize he emune a ion based on inancial and ESG
objec i es. Cohen e al.(2023) p o ide empi ical e idence ha
ESG- based incen i es inc ease ESG pe o mance and he asso-
cia ed ESG sco es, while ESG- based incen i es end o lead o
poo e inancial pe o mance. Chang e al.(2015) analyzed he
ela ionship be ween inancial dis ess isk and he incen i e-
based compensa ion o new CEOs. They ound new CEOs e-
cei e mo e equi y- based incen i es o ensu e ha he company's
inancial posi ion is imp o ed. As a esul , he choice and design
o incen i e- based emune a ion signi ican ly in luence man-
agemen decisions and he achie emen o bo h inancial and
ESG objec i es.
Fu he mo e, he di icul y o achie ing he a ge mus be
aken in o accoun . I may be possible ha ESG objec i es can
be achie ed mo e easily han inancial objec i es; his is he
case o companies ha do no ha e enough esou ces o e-
co e om hei inancial dis ess and egula ly all sho o i-
nancial objec i es. I esou ces a e sca ce, i would be a ional
6381
o pu sue he mo e easily achie able ESG objec i es i s and
maximize he associa ed emune a ion componen s. In addi ion
o inc easing a iable emune a ion, managemen could ollow
al e na i e ca ee pa hs (Song and Thako 2006; Zhang2021) o
epu a ional objec i es (Jiang e al.2016) ha a e p omo ed by
achie ing he highes possible ESG sco es. The p io i y alloca-
ion o sca ce esou ces o achie e ESG objec i es is a u he a -
gumen o a posi i e ela ionship be ween he le el o inancial
dis ess and ESG sco es ha could be obse ed o inancially
dis essed companies.
Bo h he nega i e and posi i e ela ionship be ween inancial dis-
ess and ESG sco es can be alid simul aneously bu o di e en
companies. A nega i e ela ionship migh be p ope o inancially
heal hy companies, and a posi i e one migh be alid o inan-
cially dis essed companies. The lines o a gumen om he ex-
is ing li e a u e can be summa ized in he ollowing hypo hesis:
The ela ionship be ween inancial dis ess and ESG
sco es should ha e a U- shaped p og ession, whe e
no only inancially heal hy companies, bu also
inancially dis essed companies should ha e a high
ESG sco e.
While a high ESG sco e o inancially heal hy companies un-
de pins he posi i e ela ionship be ween a company's ESG
ac i i ies and inancial pe o mance, a high ESG sco e o inan-
cially dis essed companies would call in o ques ion he mean-
ing ulness o ESG sco es o his g oup o companies. The e o e,
nonpa ame ic eg ession models mus be used o e eal he ac-
ual ela ionship be ween he le el o inancial dis ess and ESG
sco es (Has ie and Tibshi ani1990, 1995; Wood2017) and in e -
p e ed acco dingly. Howe e , a U- shaped ela ionship be ween
inancial dis ess and ESG sco es has no ye been empi ically
documen ed, as he indings o da e exclusi ely use linea e-
g ession echniques and hus exclude a possible nonlinea ela-
ionship in he da a om he ou se .
3 | Da a, Va iables, and Desc ip i e S a is ics
3.1 | Raw Da a, Final Da ase , and Final Samples
The s a ing poin o ou empi ical analysis is a me ged da abase
o lis ed US companies. This da abase includes accoun ing and
ma ke da a om he CRSP/Compus a da abase, owne ship
da a de i ed om Fo m 13F and Fo m 13D(/A) ilings, and da a
on inancial dis ess om BRAINKRUPTCY. O e all, he da a-
base o lis ed US companies includes 71,794 i m- yea obse a-
ions o he pe iod 2003–2022.
The bank up cy p edic ion model o BRAINKRUPTCY was e-
cen ly desc ibed in de ail by Lohmann and Möllenho (2023b),
and he bank up cy p edic ions we e applied by Lohmann and
Möllenho (2023c). The bank up cy p edic ion model uses nu-
me ous a iables p o en in o ma i e o inancial dis ess and
p ospec i e co po a e bank up cy (e.g., he explana o y a i-
ables in oduced by Campbell e al.2008) and is a ailable o all
lis ed US companies. BRAINKRUPTCY es ima es he measu e
o bank up cy isk by using a logis ic bank up cy p edic ion
model and a g adien - boos ing model. The ou - o - ime alida-
ions o he annually upda ed bank up cy p edic ion models
p o ide empi ical e idence ha he classi ica ions based on
he measu e o bank up cy isk a e accu a e. The AUC alues
o he annual ou - o - ime alida ions luc ua e wi hin a small
ange o a ound 0.9. In compa ison, he ou - o - ime alidi y o a
ees ima ed bank up cy p edic ion model ha includes he a i-
ables o he Z sco e (Al man1968, 2013) achie es only an AUC
alue o 0.716 (Lohmann e al.2023). Ou main analysis applies
he measu e o bank up cy isk based on a logis ic bank up cy
p edic ion model; he measu e o bank up cy isk based on a
g adien - boos ing model is used o a obus ness check.
In he nex s ep, da abases on ESG sco es om Re ini i , MSCI,
ESG Book, and Moody's ESG we e ma ched o he me ged da-
abase o lis ed US companies. An empi ical analysis o ESG
has o conside ha he con en o ESG and he associa ed ESG
sco es a e he e ogeneous (e.g., Meue e al.2019). Al hough ESG
a ing agencies claim hei sco es a e a eliable indica o o a
company's ESG ac i i ies, esea ch on ESG a ing disag eemen
shows ha he ESG sco es o di e en ESG a ing agencies can
di e conside ably (Cha e ji e al. 2016; Dimson e al. 2020;
Billio e al.2021; Be g e al.2022). In addi ion, he e a e indi-
ca ions o a delibe a e dis o ion o ESG sco es by ESG a ing
agencies i he ESG a ing agencies a e subjec o a con lic o
in e es and gene a e signi ican e enue om ESG sco e- based
indices (Ag awal e al.2023). Ne e heless, he ESG sco es a e
posi i ely co ela ed wi h each o he , and he e o e, co po a e
ac i i ies such as new ESG in es men s, addi ional ESG- ela ed
ope a ions, and he p o ision o ESG in o ma ion will likely in-
c ease all ESG sco es. As a esul , alid empi ical indings mus
be ep oducible o all ma e ial ESG sco es, o he empi ical e-
sul s mus no con adic each o he , a leas o di e en ESG
sco es.
O e all, a e ma ching he da abases on ESG sco es om
Re ini i , MSCI, ESG Book, and Moody's ESG o ou me ged
da abase o lis ed US companies, we ended up wi h 34,723 i m-
yea obse a ions wi h a leas one ESG sco e. One hund ed
o y- six i m- yea obse a ions (o 0.42% o he 34,723 i m-
yea obse a ions, espec i ely) we e elimina ed due o missing
con ol a iables; 142 i m- yea obse a ions did no include
he di idend yield, and he s ock e u n ola ili y was missing
in ou i m- yea obse a ions. As a esul , he inal da ase in-
cludes 34,577 i m- yea obse a ions wi h a leas one ESG sco e
and all o he applied con ol a iables. We u he p ocessed he
inal da ase by winso izing a iables ha we conside in he
empi ical analysis a he 1s and 99 h pe cen iles i a a iable
has no na u al limi and exhibi s ecognizable ou lie s.
Fou samples o ou di e en ESG sco es applied as dependen
a iables we e ex ac ed om he inal da ase . Table1 p o ides
in o ma ion on he sample sizes, he numbe o i m- yea ob-
se a ions o which a pai o ESG sco es is a ailable, and he
co ela ions be ween he ESG sco es. The ESG sco es om
Re ini i , MSCI, and ESG Book o m he basis o he la ge
samples, whe eas he ESG sco es om Moody's ESG o m he
basis o he smalle sample. The la ge samples include a la ge
sha e o i m- yea obse a ions om he smalle sample. The
pai wise co ela ions o he ESG sco es ange be ween 0.254
and 0.673. Ve y simila co ela ions can be de e mined i he
6382 Co po a e Social Responsibili y and En i onmen al Managemen , 2025
quan ile anks o he a ious ESG sco es a e aken in o accoun .
Tha empi ical inding is consis en wi h Cha e ji e al.(2016),
who showed ha he pai wise co ela ions be ween CSR a ings
o di e en a ing agencies a e gene ally low and mos ly below
0.5, and Be g e al.(2022), who showed ha he a e age pai wise
co ela ion be ween p ominen ESG sco es anges be ween 0.38
and 0.71.
Figu e 1 shows he numbe o companies o which he ESG
sco es we e a ailable o e ime. The ESG da abases a e dis in-
guished om each o he in e ms o he his o y o da a a ailabil-
i y and he numbe o companies co e ed. The ESG sco es om
Re ini i , MSCI, and ESG Book co e a mo e signi ican numbe
o companies. Hence, he ESG sco es om Re ini i , MSCI, and
ESG Book also p o ide da a on smalle companies ha ecei e
less a en ion om in es o s and s akeholde s. Ne e heless,
Re ini i , MSCI, ESG Book, and Moody's ESG p o ide la ge ESG
da abases ha include long- e m ESG in o ma ion.
3.2 | Applied Va iables and Desc ip i e S a is ics
The ela ionship be ween inancial dis ess and ESG sco es is
analyzed using linea and nonpa ame ic eg ession echniques.
Fou ESG a ing agencies p o ide he dependen a iables o
he eg essions, while a comp ehensi e se o company- ela ed
independen a iables is used. The ESG da a we e ob ained om
Re ini i , MSCI, ESG Book, and Moody's ESG, and each includes
a company's o e all ESG sco e and he espec i e E- S- G sub ac-
o s. As a esul , we apply ou o e all ESG sco es as dependen
a iables in he p incipal analysis and 12 E- S- G sub ac o s as
dependen a iables in addi ional eg essions.
The independen a iable o in e es is he measu e o bank-
up cy isk ha BRAINKRUPTCY p o ides. A company's le el
o inancial dis ess is indica ed by he measu e o bank up cy
isk. The measu e o bank up cy isk is he ou come o a logis ic
bank up cy p edic ion model calib a ed o lis ed US companies
and can be in e p e ed as he p obabili y o bank up cy. The
measu e o bank up cy isk anges in he in e al [0, 1].
Table 2 p o ides he de ini ions o he applied dependen and
independen a iables. Besides he dependen a iables on ESG
sco es and he measu e o bank up cy isk, he eg ession anal-
ysis conside s 14 con ol a iables on company undamen als
and owne ship. Addi ionally, he eg ession analysis con ols
o yea - ixed, indus y- ixed, and company- ixed e ec s in he
panel da a.
Table3 epo s he desc ip i e s a is ics on he dependen and
independen a iables o he ou inal samples. The mean and
he s anda d de ia ion o he ESG sco es om Moody's ESG a e
lowe as he alue ange is [0, 10] ins ead o [0, 100] o all o he
applied ESG sco es. The la ge samples based on ESG sco es
om Re ini i , MSCI, and ESG Book include a mo e signi ican
numbe o i m- yea obse a ions om smalle companies han
he smalle sample based on ESG sco es om Moody's ESG. This
di e ence be ween he ou inal samples becomes appa en in
he mean o he independen a iables. The la ge samples a e
associa ed wi h lowe mean alues o o al asse s, ma ke alue
o equi y, e u n on equi y, and e u n on asse s. Rega ding he
o he independen a iables, he inal samples ha e compa able
cha ac e is ics and do no di e signi ican ly.
Table4 shows he co ela ions be ween he independen a i-
ables when conside ing he inal da ase o 34,723 i m- yea
obse a ions. The measu e o bank up cy isk shows no mean-
ing ul co ela ion wi h any o he independen a iable. In un-
epo ed esul s, we ind simila co ela ions in he ou inal
samples and o he case whe e he quan ile anks o he inde-
penden a iables a e conside ed in he co ela ion analysis.
The e a e meaning ul co ela ions be ween wo independen
a iables i he a iables a e compa able in con en . This applies
o he pai ing o al asse s and ma ke alue o equi y, Tobin's Q
and ma ke alue o book alue, and e u n on equi y and e u n
on asse s. We add ess hese co ela ions by examining he a i-
ance in la ion ac o s o he independen a iables used in he
TABLE 1 | Summa y s a is ics on he ou samples o ou di e en ESG sco es.
Sample Fi m- yea obse a ions Re ini i MSCI ESG Book Moody's ESG
Re ini i 23,980 0.383 0.489 0.673
MSCI 26,657 17,634 0.254 0.417
ESG Book 25,217 20,170 19,722 0.432
Moody's ESG 8157 7208 7639 7925
No e: The able epo s he inal sample sizes (Column 2), o e lapping i m- yea obse a ions wi h a leas wo speci ic ESG sco es (lowe sec ion in Columns 3–5), and
he espec i e pai wise co ela ions be ween he ESG sco es (uppe sec ion in Columns 4–6).
FIGURE 1 | Panel da a s uc u e o he inal samples o ou di e -
en ESG sco es. This igu e shows he numbe o companies o which
ESG sco es a e a ailable o e ime a e c oss- checking agains ou
me ged da abase o lis ed US companies. Ou empi ical analysis con-
side s ESG sco es om Re ini i , MSCI, ESG Book, and Moody's ESG.
While Re ini i and ESG Book co e companies o he en i e his o y up
o 2003, MSCI and Moody's ESG da a a e a ailable since 2007.
6383
TABLE 2 | De ini ions o he applied dependen and independen a iables.
Va iable De ini ion
ESG a iables
ESG sco e Re ini i (j,a)Company j's ESG sco e om Re ini i a he end o he iscal yea a.
E sub ac o Re ini i (j,a)Company j's E sub ac o om Re ini i a he end o he iscal yea a.
S sub ac o Re ini i (j,a)Company j's S sub ac o om Re ini i a he end o he iscal yea a.
G sub ac o Re ini i (j,a)Company j's G sub ac o om Re ini i a he end o he iscal yea a.
ESG sco e MSCI(j,a)Company j's ESG sco e om MSCI a he end o he iscal yea a.
E sub ac o MSCI(j,a)Company j's E sub ac o om MSCI a he end o he iscal yea a.
S sub ac o MSCI(j,a)Company j's S sub ac o om MSCI a he end o he iscal yea a.
G sub ac o MSCI(j,a)Company j's G sub ac o om MSCI a he end o he iscal yea a.
ESG sco e ESG Book(j,a)Company j's ESG sco e om ESG Book a he end o he iscal yea a.
E sub ac o ESG Book(j,a)Company j's E sub ac o om ESG Book a he end o he iscal yea a.
S sub ac o ESG Book(j,a)Company j's S sub ac o om ESG Book a he end o he iscal yea a.
G sub ac o ESG Book(j,a)Company j's G sub ac o om ESG Book a he end o he iscal yea a.
ESG sco e Moody's ESG(j,a)Company j's ESG sco e om Moody's ESG a he end o he iscal yea a.
E sub ac o Moody's ESG(j,a)Company j's E sub ac o om Moody's ESG a he end o he iscal yea a.
S sub ac o Moody's ESG(j,a)Company j's S sub ac o om Moody's ESG a he end o he iscal yea a.
G sub ac o Moody's ESG(j,a)Company j's G sub ac o om Moody's ESG a he end o he iscal yea a.
Company a iables
Measu e o bank up cy isk(j,a)Company j's measu e o bank up cy isk om BRAINKRUPTCY based on
a logis ic bank up cy p edic ion model a he end o he iscal yea a.
To al asse s(j,a)Company j's o al asse s in iscal yea a, winso ized a he 99 h pe cen ile.
B&h s ock e u n(j,a)Company j's buy- and- hold s ock e u n in iscal yea a, winso ized a he 99 h pe cen ile.
S ock e u n ola ili y(j,a)Company j's annualized s ock e u n ola ili y in iscal
yea a, winso ized a he 99 h pe cen ile.
Tobin's Q(j,a)Company j's ma ke alue o equi y plus i s book alue o o al asse s,
minus i s book alue o equi y, di ided by i s book alue o o al
asse s in iscal yea a, winso ized a he 99 h pe cen ile.
Ma ke alue o equi y(j,a)Company j's ma ke alue o equi y in iscal yea a, winso ized a he 99 h pe cen ile.
Ma ke alue o book alue(j,a)Company j's ma ke alue o equi y di ided by i s book alue o
equi y in iscal yea a, winso ized a he 99 h pe cen ile.
Le e age(j,a)Company j's o al deb di ided by i s o al asse s in iscal
yea a, winso ized a he 99 h pe cen ile.
Re u n on equi y(j,a)Company j's ea nings be o e ax di ided by i s book alue o equi y
in iscal yea a, winso ized a he 1s and 99 h pe cen iles.
Re u n on asse s(j,a)Company j's ea nings be o e in e es , ax, dep ecia ion and amo iza ion (EBITDA)
di ided by i s o al asse s in iscal yea a, winso ized a he 1s and 99 h pe cen iles.
CapEx(j,a)Company j's capi al expendi u es (CapEx) di ided by i s o al
asse s in iscal yea a, winso ized a he 99 h pe cen ile.
R&D(j,a)Company j's esea ch and de elopmen expendi u es (R&D) di ided by
i s o al asse s in iscal yea a, winso ized a he 99 h pe cen ile.
(Con inues)
6384 Co po a e Social Responsibili y and En i onmen al Managemen , 2025
linea eg ession models and by checking he obus ness o he
esul s by a ying he independen a iables. Howe e , we apply
all con ol a iables in he eg essions p esen ed in he esul s
sec ion.
4 | Empi ical Resul s
4.1 | Linea Reg ession Resul s
The linea eg ession models es ima e a linea ela ionship
be ween he independen and dependen a iables. Table 5
shows he esul s o he linea eg ession models LRM1–
LRM4 in e ms o he es ima ed eg ession coe icien s o he
me ic independen a iables. The linea eg ession models
apply di e en ESG sco es as dependen a iables. In he ESG
sco es applied, he e a e di e ences in he samples used wi h
ega d o he a ailable i m- yea obse a ions. Based on he
applied ESG sco es, he e a e also di e ences in he applied
samples wi h ega d o he a ailable i m- yea obse a ions.
Howe e , all ou linea eg ession models use he same in-
dependen a iables, and we es ima ed all eg essions wi h
s anda d e o s clus e ed a he company le el. The linea e-
g ession models es ima e a nega i e and s a is ically signi i-
can ela ionship be ween he measu e o bank up cy isk and
he ESG sco es; he e is always a nega i e coe icien . The co-
e icien o he linea eg ession model LRM2 is much smalle
as he ESG sco e om MSCI is in he alue ange [0, 10] in-
s ead o [0, 100] o all o he applied ESG sco es. Based on he
linea eg ession models, we can conclude ha , ce e is pa i-
bus, he ESG sco e dec eases i a company's inancial dis ess
inc eases. This esul is ully consis en wi h compa able s ud-
ies using a linea eg ession echnique (e.g., Zheng e al.2019;
Boubake e al. 2020; Aslan e al. 2021; Badayi e al.2021;
T uong e al.2025).
O e all, he linea eg ession models show mixed esul s con-
ce ning he me ic con ol a iables. The sign o he es ima ed
coe icien o i s s a is ical signi icance o en changes when he
esul s o a speci ic con ol a iable a e compa ed o he lin-
ea eg ession models LRM1–LRM4. The he e ogenei y o he
esul s is o be expec ed and can be explained by he low co ela-
ion be ween he a ious ESG sco es. As expec ed, he es ima ed
coe icien s di e signi ican ly in magni ude, as he con ol
a iables ha e a di e en ange o alues (see he desc ip i e
s a is ics in Table3). Nume ically la ge con ol a iables ha e
e y small coe icien s, and nume ically small con ol a iables
ha e e y la ge coe icien s.
We calcula ed and e iewed he a iance in la ion ac o s o he
independen a iables ha a e applied in he linea eg ession
models LRM1–LRM4 o check o mul icollinea i y caused by
he co ela ions be ween he independen a iables. The inde-
penden a iable S ock e u n ola ili y has he highes a iance
in la ion ac o in each eg ession; his lies be ween 2.00 (LRM2)
and 2.41 (LRM4). All o he a iance in la ion ac o s a e always
below 2 and mos ly close o 1. Mul icollinea i y is he e o e only
p esen o a negligible ex en and he e is no indica ion ha he
linea eg ession esul s and he ollowing addi i e eg ession
analysis a e dis o ed by mul icollinea i y.
4.2 | Addi i e Reg ession Resul s
The basic assump ion o a linea eg ession model is ha he e
a e linea ela ionships whose slopes (i.e., coe icien s) a e es-
ima ed by he model. As we need o know whe he he e a e
linea ela ionships, a linea eg ession model will p oduce
misleading esul s i nonlinea ela ionships exis be ween he
independen and dependen a iables. To o e come his sho -
coming o a linea eg ession model, we ha e o apply addi i e
eg ession models ha es ima e he e ec i e ela ionship in
e ms o an unspeci ied unc ion, which could be linea o non-
linea (S one1985; Has ie and Tibshi ani1990). We apply pe-
nalized splines (see o an applica ion in business esea ch, e.g.,
Lohmann and Ohlige 2017; Lohmann e al.2023) o model he
nonlinea ela ionships be ween independen a iables, includ-
ing he measu e o bank up cy isk and a se o con ol a iables,
and dependen a iables consis ing o se e al ESG sco es and
hei E- S- G sub ac o s. We pu each spline unc ion in conc e e
e ms by using se en equidis an in e als and polynomials o
ank g = 3 o each penalized spline. The minimum o he gen-
e alized c oss- alida ion c i e ion de e mines he smoo hing
pa ame e (Eile s and Ma x1996; G een and Sil e man1994).
Table 6 shows he esul s o he addi i e eg ession models
ARM1–ARM4. The ou pu alue o he me ic independen
a iables is he equi alen deg ee o eedom. The equi alen
deg ee o eedom indica es he nonlinea i y in he es ima ed
spline unc ion. An equi alen deg ee o eedom d = 1.000
Va iable De ini ion
Di idend yield(j,a)Company j's o al annual di idend di ided by i s ma ke alue o equi y
in iscal yea a, winso ized a he 1s and 99 h pe cen iles.
Ac i e owne ship(j,a)The o al ac i e owne ship o company j, based on Fo m
13D(/A) ilings a he end o he iscal yea a.
Ins i u ional owne ship(j,a)The sha e o ins i u ional owne ship o company j, based on
Fo m 13F ilings a he end o he iscal yea a.
Indus yjCompany j's S anda d Indus ial Classi ica ion (SIC) code: SIC1–SIC9
No e: This able p esen s and de ines he a iables we used. We include ESG sco es and E- S- G sub ac o s om Re ini i , MSCI, ESG Book, and Moody's ESG as
dependen a iables. Fu he mo e, we de i ed he measu e o bank up cy isk om BRAINKRUPTCY, u he company a iables om he CRSP and Compus a
da abases, ac i e owne ship om 13D(/A) ilings, and ins i u ional owne ship om 13F ilings.
TABLE 2 | (Con inued)
6391
he e should be a U- shaped ela ionship be ween he measu e
o bank up cy isk and he a iable Sha eholde - s akeholde
o ien a ion ha is compa able o he U- shaped ela ionship be-
ween he measu e o bank up cy isk and he ESG sco es om
Re ini i , MSCI, ESG Book, and Moody's ESG. Second, he e
should be no co ela ion be ween he a iable Sha eholde -
s akeholde o ien a ion and he esiduals o he addi i e eg es-
sion models ARM1–ARM4 p esen ed in Table 6. Thi d, he
a iable Sha eholde - s akeholde o ien a ion should be able o
explain he a iance o he ESG sco es o a simila ex en as he
a iable Measu e o bank up cy isk and should show a posi i e,
s a is ically signi ican , and almos linea ela ionship wi h he
ESG sco es om Re ini i , MSCI, ESG Book, and Moody's ESG.
Table7 shows he esul s o he linea eg ession model LRM-
SSO and he addi i e eg ession model ARM- SSO when he
a iable Sha eholde - s akeholde o ien a ion is applied as he
dependen a iable. The linea eg ession model indica es a neg-
a i e and s a is ically signi ican linea ela ionship be ween
he measu e o bank up cy isk and a company's s akeholde
o ien a ion. On he con a y, he addi i e eg ession model e-
eals a s a is ically signi ican nonlinea ela ionship be ween
he measu e o bank up cy isk and a company's s akeholde
o ien a ion, depic ed in Figu e 5. The nonlinea ela ionship
be ween he measu e o bank up cy isk and he Sha eholde -
s akeholde o ien a ion can be desc ibed by a U- shaped ela-
ionship compa able o he ela ionships be ween he measu e
o bank up cy isk and ESG sco es in Figu e 2. Financially
dis essed companies gene ally exhibi a high s akeholde o i-
en a ion, al hough all managemen e o s should be di ec ed
owa d p ese ing he company and p o ec ing he sha ehold-
e s' equi y. The comp ehensi e s akeholde o ien a ion is con-
sis en wi h he inancially dis essed companies' high ESG
sco es.
Table 8 shows he co ela ions be ween he a iable
Sha eholde - s akeholde o ien a ion and he esiduals o he
addi i e eg ession models ARM1–ARM4 p esen ed in Table6.
No anomalies we e ound in he e iew o he co ela ions.
The esiduals o he addi i e eg ession models ARM1–ARM4
a e no co ela ed wi h he a iable Sha eholde - s akeholde
o ien a ion. The a iable Sha eholde - s akeholde o ien a ion
does no explain any a iance in he ESG sco es ha is no
explained by he addi i e eg ession models ARM1–ARM4.
When he a iable Sha eholde - s akeholde o ien a ion e-
places he a iable Measu e o bank up cy isk, and he e is a
FIGURE 3 | The nonlinea ela ionship be ween he ma ke alue (MV) o equi y and he ESG sco es om Re ini i , MSCI, ESG Book, and
Moody's ESG. This igu e shows he s a is ically signi ican spline pa e ns o he ela ionship be ween he ma ke alue o equi y and he ESG
sco es om Re ini i , MSCI, ESG Book, and Moody's ESG. The ma ke alue o equi y is plo ed on he x axis, and he ESG sco e is plo ed on he y
axis. Due o he wi hin ans o ma ion, he alues on he axes ep esen de ia ions om he company mean alue. The bold black line ep esen s he
es ima ed spline unc ion and he dashed line ep esen s he es ima ed linea unc ion. The 95% con idence band is shaded g ay.
6392 Co po a e Social Responsibili y and En i onmen al Managemen , 2025
s a is ically signi ican posi i e ela ionship be ween he a i-
able Sha eholde - s akeholde o ien a ion and he ESG sco es, we
p o ide empi ical e idence ha inancially dis essed companies
mimic he s akeholde - o ien ed beha io o inancially heal hy
companies by emphasizing s akeholde - o ien ed ESG objec i es
and in ensi ying ESG- suppo ing disclosu es.
FIGURE 4 | Rela ionships be ween he measu e o bank up cy isk (MBR) and he E- S- G sub ac o s om Re ini i , MSCI, ESG Book, and
Moody's ESG. This igu e shows he spline pa e ns o he ela ionship be ween he measu e o bank up cy isk and he E- S- G sub ac o s om
Re ini i , MSCI, ESG Book, and Moody's ESG. The measu e o bank up cy isk is plo ed on he x axis, and he E- S- G sub ac o s a e plo ed on he y
axis. Due o he wi hin ans o ma ion, he alues on he axes ep esen de ia ions om he company mean alue. The bold black line ep esen s he
es ima ed spline unc ion, and he dashed line ep esen s he es ima ed linea unc ion. The 95% con idence band is shaded g ay.
6393
Table 9 shows he esul s o he addi i e eg ession models
ARM1- SSO–ARM4- SSO, whe e he a iable Sha eholde -
s akeholde o ien a ion eplaces he a iable Measu e o bank-
up cy isk. The e is a s a is ically signi ican ela ionship
be ween he a iable Sha eholde - s akeholde o ien a ion and
he ESG sco es om Re ini i , MSCI, ESG Book, and Moody's
ESG. Fu he mo e, he adjus ed R2 o he addi i e eg ession
models ARM1- SSO–ARM4- SSO is compa able o he adjus ed
R2 o he addi i e eg ession models ARM1–ARM4 p esen ed
in Table6. The independen a iable Sha eholde - s akeholde
o ien a ion explains he a iance o he ESG sco es o a simila
ex en as he independen a iable Measu e o bank up cy isk.
Figu e6 depic s he spline pa e ns o he independen a iable
Sha eholde - s akeholde o ien a ion o he addi i e eg ession
models ARM1- SSO–ARM4- SSO ha conside ou di e en
ESG sco es as dependen a iables. Figu e6 e eals a posi i e
and almos linea ela ionship be ween he independen a i-
able Sha eholde - s akeholde o ien a ion and he ESG sco es
om Re ini i , MSCI, ESG Book, and Moody's ESG. The 95%
con idence bands a e e y na ow and do no allow any o he
conclusion. As a esul , he mos plausible in e p e a ion o he
TABLE 7 | Resul s o he linea eg ession model LRM- SSO and
he addi i e eg ession model ARM- SSO wi h he dependen a iable
Sha eholde - s akeholde o ien a ion (SSO).
Reg ession model LRM- SSO ARM- SSO
Dependen a iable
Sha eholde -
s akeholde
o ien a ion
Sha eholde -
s akeholde
o ien a ion
Measu e o bank up cy
isk
−0.085** 2.892***
To al asse s 0.000 2.983***
B&h s ock e u n −0.016*** 1.000***
S ock e u n ola ili y 0.064*** 2.773***
Tobin's Q 0.005 1.000**
Ma ke alue o equi y 0.000*** 1.000***
Ma ke alue o book
alue
0.001 1.813**
Le e age 0.095*** 1.000***
Re u n on equi y 0.013*1.000**
Re u n on asse s −0.022 1.000
CapEx −0.173 1.000**
R&D −0.153*1.366**
Di idend yield −0.257 1.000*
Ac i e owne ship 0.064*1.000***
Ins i u ional owne ship −0.016 2.864*
Yea - ixed e ec s Yes Yes
Indus y- ixed e ec s Yes Yes
Fi m- ixed e ec s Yes Yes
N30,329 30,329
Adjus ed R20.09 0.09
No e: This able shows he esul s o he linea eg ession model LRM- SSO
(i.e., es ima ed coe icien s) and he addi i e eg ession model ARM- SSO (i.e.,
equi alen deg ees o eedom) whe e Sha eholde - s akeholde o ien a ion
is applied as he dependen a iable. The independen a iables include he
company a iables ha a e de ined in Table2. Bo h eg ession models ake in o
accoun yea - ixed, indus y- ixed, and i m- ixed e ec s. All s anda d e o s o
he linea eg ession model LRM- SSO a e clus e ed a he company le el. *, **,
and *** ep esen signi icance le els o 0.05 [o 5%], 0.01 [o 1%], and 0.001 [o
0.1%], espec i ely.
*p- alue < 0.05.
**p- alue < 0.01.
***p- alue < 0.001.
FIGURE 5 | The U- shaped ela ionship be ween he measu e o
bank up cy isk (MBR) and he Sha eholde - s akeholde o ien a ion.
This igu e shows he s a is ically signi ican spline pa e ns o he ela-
ionship be ween he measu e o bank up cy isk and he Sha eholde -
s akeholde o ien a ion. The measu e o bank up cy isk is plo ed on
he x- axis, and he Sha eholde - s akeholde o ien a ion is plo ed on he
y- axis. Due o he wi hin ans o ma ion, he alues on he axes ep e-
sen de ia ions om he company mean alue. The bold black line ep-
esen s he es ima ed spline unc ion o he addi i e eg ession model
ARM- SSO, and he dashed line ep esen s he es ima ed linea unc ion
o he linea eg ession model LRM- SSO. The 95% con idence band is
shaded g ay.
TABLE 8 | Co ela ions be ween he a iable Sha eholde -
s akeholde o ien a ion and he esiduals om he addi i e eg ession
models ARM1–ARM4.
Sha eholde -
s akeholde -
o ien a ion
Numbe o
obse a ions
Residuals om ARM1 0.017 21,088
Residuals om ARM2 0.012 23,208
Residuals om ARM3 0.016 21,936
Residuals om ARM4 0.029 7406
No e: This able shows he co ela ions be ween he a iable Sha eholde -
s akeholde o ien a ion and he esiduals om he addi i e eg ession models
ARM1–ARM4.
6394 Co po a e Social Responsibili y and En i onmen al Managemen , 2025
e ealed U- shaped ela ionship be ween he measu e o bank-
up cy isk and ESG sco es is ha companies an icipa e hei
upcoming inancial dis ess and mimic he s akeholde - o ien ed
beha io o inancially heal hy companies by emphasizing ESG
objec i es and in ensi ying ESG- suppo ing disclosu es. The
empi ical inding sugges s ha inancially dis essed compa-
nies manage hei ESG sco es upwa d by in ensi ying hei
s akeholde - o ien ed epo ing, exp essed by he g oups ad-
d essed in he 10- K ilings.
5.2 | Fu he Ex ensions
We ca ied ou h ee u he ex ensions o he eg ession analysis,
he esul s o which a e wo h men ioning. The i s ex ension is
a eg ession analysis ha akes in o accoun mul iyea capi al ex-
pendi u es and R&D expendi u es. The idea behind his ex ension
is ha company- ela ed measu es ha lead o a high ESG sco e
could induce inancial consequences ha inc ease he measu e o
bank up cy isk. Such a ela ionship should be pa icula ly e iden
in ESG in es men s, as hese impac a company's inancial posi-
ion mo e han ope a ional measu es o ESG- suppo ing disclo-
su es. I is a plausible a gumen ha pas cash low- e ec i e ESG
in es men s can inc ease a company's cu en ESG sco e while
wo sening i s cu en inancial posi ion. A p e ious inc ease in
capi al and R&D expendi u es wi h a subsequen inc ease in he
ESG sco e would indica e his cause- e ec ela ionship. We es ed
his hypo hesis by aking in o accoun he capi al expendi u es o
he p e ious 2 and 3 yea s when we calcula ed he independen
a iable CapEx(j,a) and he R&D expendi u es o he p e ious 2
and 3 yea s when we calcula ed he independen a iable R&D(j,a).
The esul s o he ex ended eg ession analyses a e compa able o
Table6 and emain almos unchanged, demons a ing he obus -
ness o ou esea ch.
As a second ex ension, we applied he CDP ( o me ly he Ca bon
Disclosu e P ojec ) da abase o analyze in es men s o educe
g eenhouse gas emissions in mo e de ail. Based on a subsample
TABLE 9 | Resul s o he addi i e eg ession models ARM1- SSO–ARM4- SSO.
Reg ession model ARM1- SSO ARM2- SSO ARM3- SSO ARM4- SSO
Dependen a iable ESG sco e Re ini i ESG sco e MSCI
ESG sco e
ESG book
ESG sco e
Moody's ESG
Sha eholde - s akeholde o ien a ion 1.374*** 2.920*** 2.535*** 2.797***
To al asse s 2.981*** 2.884** 1.921*1.000***
B&h s ock e u n 2.943*** 1.000*** 1.000*** 1.000
S ock e u n ola ili y 2.856*1.000** 1.916*** 2.362***
Tobin's Q 1.000 1.000 2.970*** 2.866***
Ma ke alue o equi y 2.990*** 2.990*** 2.923*** 2.988***
Ma ke alue o book alue 1.294 1.910*1.000** 1.307
Le e age 1.000*** 1.000 1.830*** 1.760*
Re u n on equi y 1.000 1.000*2.519 1.000
Re u n on asse s 1.000 1.000*2.984*** 2.839*
CapEx 1.000*** 2.715 2.765*** 1.273***
R&D 2.047*** 1.000 2.931*** 2.258
Di idend yield 2.957*** 2.827** 1.550*** 2.575***
Ac i e owne ship 1.000*** 1.000*2.797*** 1.000
Ins i u ional owne ship 1.000*** 1.000 1.470*1.000
Yea - ixed e ec s Yes Yes Yes Yes
Indus y- ixed e ec s Yes Yes Yes Yes
Fi m- ixed e ec s Yes Yes Yes Yes
N21,318 23,450 22,356 7437
Adjus ed R20.379 0.101 0.095 0.309
No e: This able shows he esul s (i.e., equi alen deg ees o eedom) o he addi i e eg ession models ARM1- SSO–ARM4- SSO, whe e di e en ESG sco es a e
applied as he dependen a iable. The independen a iables include he company a iables ha a e de ined in Table2; he a iable Sha eholde - s akeholde
o ien a ion eplaces he a iable Measu e o bank up cy isk. All addi i e eg ession models ake in o accoun yea - ixed, indus y- ixed, and i m- ixed e ec s. *, **,
and *** ep esen signi icance le els o 0.05 [o 5%], 0.01 [o 1%], and 0.001 [o 0.1%], espec i ely.
*p- alue < 0.05.
**p- alue < 0.01.
***p- alue < 0.001.
6395
o 2877 analyzable i m- yea obse a ions, all conduc ed e-
g ession analyses show ha he e is no s a is ically signi ican
ela ionship be ween he in es men s o educe g eenhouse gas
emissions and he measu e o bank up cy isk. Consequen ly,
he hypo hesis ha pas ESG in es men s wo sen a company's
cu en inancial si ua ion and, a he same ime, inc ease he
cu en ESG sco es mus be ejec ed wi h a p obabili y bo de -
ing on ce ain y.
The hi d ex ension is a eg ession analysis ha akes in o ac-
coun a company's ene gy in ensi y. Company- ela ed measu es
ha lead o high ESG sco es and an inc ease in inancial dis ess
do no necessa ily equi e ESG in es men s. Howe e , hese
measu es should mainly a ec he en i onmen al sub ac o , as
he e ealed U- shaped ela ionship is p ima ily based on his
sub ac o . An impo an indica o o a company's en i onmen-
al oo p in is he ene gy in ensi y o i s alue- added p ocess.
I company- ela ed measu es lead o a high ESG sco e and an
inc ease in he measu e o bank up cy isk, we would expec a
e e sed U- shaped o a leas nega i e ela ionship be ween a
company's ene gy in ensi y and he measu e o bank up cy isk.
Financially dis essed companies should ha e a smalle en i on-
men al oo p in ega ding hei ene gy in ensi y. We sou ced
om he Re ini i da abase a sco e ha is based on he o al di-
ec and indi ec ene gy consump ion in gigajoules di ided by ne
sales o e enue in US dolla s. Based on a subsample o 6068 ana-
lyzable i m- yea obse a ions all conduc ed eg ession analyses
show ha nei he he es ima ed linea no he nonlinea ela-
ionship be ween a company's ene gy in ensi y and he measu e
o bank up cy isk is s a is ically signi ican . As a esul , i can
be uled ou wi h su icien ce ain y ha inancially dis essed
companies educe hei en i onmen al oo p in h ough eal e -
ec i e measu es o an ex en ha plausibly explains he obse ed
inc ease in he en i onmen al sub ac o .
5.3 | Robus ness
The eg ession analysis e ealed compa able U- shaped ela ion-
ships be ween he measu e o bank up cy isk and ou di e en
FIGURE 6 | The linea ela ionship be ween he Sha eholde - s akeholde o ien a ion (SSO) and he ESG sco es om Re ini i , MSCI, ESG Book,
and Moody's ESG. This igu e shows he s a is ically signi ican spline pa e ns o he ela ionship be ween he Sha eholde - s akeholde o ien a-
ion and he ESG sco es om Re ini i , MSCI, ESG Book, and Moody's ESG. Sha eholde - s akeholde o ien a ion is plo ed on he x axis, and he
ESG sco e is plo ed on he y axis. The alues on he axes a e de ia ions om he company mean alue due o he wi hin ans o ma ion. Fo be e
compa abili y, he alue ange o he x axis was limi ed o [−1, 1]. The bold black line ep esen s he es ima ed spline unc ion, and he dashed line
ep esen s he es ima ed linea unc ion om un epo ed linea eg ession model. The 95% con idence band is shaded g ay.
6396 Co po a e Social Responsibili y and En i onmen al Managemen , 2025
ESG sco es om Re ini i , MSCI, ESG Book, and Moody's ESG.
The empi ical analysis consis en ly documen s ha inancially
dis essed companies a e associa ed wi h highe ESG sco es and
ha his inding is mainly based on he en i onmen al sub ac-
o . We subs an ia ed he obus ness o he empi ical esul s in
g ea de ail by a ying he applied da a and he numbe o in e -
als o which each spline unc ion was es ima ed.
A c i ical design elemen o addi i e eg ession models is he
numbe o in e als o which each spline unc ion was es i-
ma ed. Fi s , we checked he app op ia eness o he applied
numbe o in e als by pe o ming he es ecommended by
Wood(2017, sec ion5.9). The es is based on andomly sam-
pled da a and p oduces a es s a is ic ha may widely a y i
he es is eplica ed. The e o e, we epea ed he es 100 imes
o he addi i e eg ession models ARM1–ARM4 o make a
alid s a emen abou he obus ness o he addi i e eg es-
sion models. The e alua ion o he es s a is ics shows ha
he applied numbe o in e als is app op ia e o model he
ela ionship be ween he measu e o bank up cy isk and he
ESG sco es. Ne e heless, we es ima ed he addi i e eg es-
sion models using a la ge numbe o in e als o all me ic-
independen a iables. The U- shaped ela ionship be ween
he measu e o bank up cy isk and he ESG sco es is always
ecognizable and obus agains any easonable change in he
numbe o in e als.
The applied inal da ase and he de i ed inal samples include
i m- yea obse a ions om 2003 o 2022. We epea ed he com-
ple e analysis o he pe iods 2003–2019 and 2011–2022. The
analysis o he pe iod 2003–2019 excluded om he da ase he
las 3 yea s in which he COVID- 19 pandemic occu ed. The
COVID- 19 pandemic and he associa ed go e nmen al measu es
o ge he pandemic unde con ol possibly led o dis o ions in
he applied da a. An addi ional ad an age o he sho e obse a-
ion pe iod 2003–2019 is ha we do no conside ESG sco es om
Re ini i , which a e s ill changing. I he e is new ESG- ele an
in o ma ion om an ea lie yea , he ESG sco es om Re ini i
a e adjus ed. This applies in pa icula o ESG sco es o he mo e
ecen obse a ion yea s. In he analysis o he pe iod 2011–2022,
he i s 8 yea s in which he ESG a ings began we e excluded
om he da ase . Ini ial alua ion di icul ies and alua ion in-
consis encies possibly led o dis o ions in he ea ly ESG sco es.
All linea and addi i e eg essions wi h he ESG sco es and he
E- S- G sub ac o s as independen a iables show simila ela ion-
ships and hus con i m he obus ness o he empi ical esul s.
Ano he a ia ion in he samples used was ha we c ea ed a new
sample in which he ESG sco es om Re ini i , MSCI, and ESG
Book a e a ailable in all i m- yea obse a ions. This combined
sample comp ises a o al o 16,184 i m- yea obse a ions. All
linea and addi i e eg essions wi h he ESG sco es and he E-
S- G sub ac o s as independen a iables show simila ela ion-
ships. The empi ical esul s p o ide addi ional e idence o he
obus ness o he U- shaped ela ionship be ween he measu e o
bank up cy isk and he ESG sco es.
We examined he obus ness o he eg ession models by a y-
ing he independen a iable Measu e o bank up cy isk, and
highly co ela ed independen a iables. The eby, he indepen-
den a iable Measu e o bank up cy isk is a ied by applying
an al e na i e measu e o bank up cy isk ha esul s om
a g adien - boos ing model a he han a logis ic bank up cy
p edic ion model. The esul s o he eg ession models a e o-
bus agains his a ia ion o he measu e o bank up cy isk.
Fu he mo e, we obse ed ha he U- shaped ela ionships be-
ween he measu e o bank up cy isk and he ESG sco es and
hei sub ac o s (mainly, he en i onmen al sub ac o ) a e mo e
p onounced i he numbe o con ol a iables is educed and/
o i yea - ixed and indus y- ixed e ec s a e no aken in o ac-
coun . Howe e , as we do no wan o exagge a e he empi ical
esul s, we ha e only p esen ed he eg ession analyses wi h 14
independen (con ol) a iables as well as yea - ixed, indus y-
ixed, and i m- ixed e ec s.
We a ied he p ocedu e se e al imes o e ine he inal da ase
and analyze whe he he applied p ocedu e in luenced he em-
pi ical esul s. We eplaced missing alues using he k- nea es
neighbo s algo i hm, winso ized ou lie s a he 2nd and 98 h
pe cen iles, and elimina ed ou lie s. The e iew showed ha he
empi ical esul s a e obus and no a ec ed by he applied p o-
cedu e o e ine he inal da ase .
6 | Conclusion
6.1 | Insigh s
The analysis p o ides empi ical e idence o a U- shaped ela-
ionship be ween he le el o inancial dis ess measu ed by he
measu e o bank up cy isk om BRAINKRUPTCY and he
ESG sco es om Re ini i , MSCI, ESG Book, and Moody's ESG.
Abo e a ce ain h eshold, inancially dis essed companies a e
associa ed wi h high ESG sco es. The s udy no only p o ides a
conc e e answe o he empi ical ela ionship be ween inancial
dis ess and ESG sco es, bu also wo ks ou a conc e e cause–
e ec ela ionship be ween inancial dis ess and ESG sco es.
Se e e inancial dis ess is he cause, and a high ESG sco e is
he e ec . Financially dis essed companies in ensi y hei cos -
e ec i e ESG ac i i ies, such as ESG- suppo ing disclosu es and
manage hei ESG sco es upwa d.
The cause- e ec ela ionship be ween inancial dis ess and
ESG sco es has been elabo a ed by i s in alida ing he e-
e se cause- e ec ela ionship, s a ing ha measu es lead-
ing o a high ESG sco e a e he cause and inancial dis ess
is he inancial consequence o hese measu es based on em-
pi ical e idence. The in e p e a ion o he na ow con idence
bands o he addi i e eg ession models ARM1–ARM4, he
unchanged eg ession analyses wi h mul i- yea capi al expen-
di u es and R&D expendi u es, and he empi ically un e -
i iable ela ionship be ween he measu e o bank up cy isk
and a company's ene gy in ensi y a e signi ican a gumen s
agains a e e se cause- e ec ela ionship. Subsequen ly, em-
pi ical e idence was p esen ed o suppo he ac ual cause-
e ec ela ionship be ween inancial dis ess and ESG sco es.
This empi ical e idence consis s o he in e p e a ion o he
na ow con idence bands o he addi i e eg ession models
ARM1–ARM4 and he eg ession analyses wi h he a iable
Sha eholde - s akeholde o ien a ion. O e all, he e is empi -
ical e idence o a p onounced s akeholde o ien a ion o he
g oup o inancially dis essed companies.
6397
In addi ion, u he insigh s we e gained, which a e undamen-
ally neu al in e ms o a cause- e ec ela ionship. Pa icula ly,
he U- shaped ela ionship can be obse ed ega ding he en i-
onmen al sub ac o o he analyzed ESG sco es. Fu he mo e,
he e is a consis en inding ha a nega i e ela ionship exis s
be ween he ma ke alue o equi y and he ESG sco e when he
ma ke alue o equi y is below a company's mean alue, indica -
ing ha companies wi h a sh unken ma ke alue o equi y a e
associa ed wi h highe ESG sco es.
An o e all pic u e can be pu oge he om he indi idual em-
pi ical esul s. Financially dis essed companies sys ema ically
manage hei ESG sco es upwa d by ein o cing he pe cep ion
o hei ESG ac i i ies and in ensi ying ESG- suppo ing dis-
closu es. We can ule ou wi h a p obabili y bo de ing on ce -
ain y ha ESG in es men s o o he ESG- ela ed ope a ional
measu es inc ease ESG sco es and cause inancial dis ess as
a side e ec . The in ensi ica ion o ESG- suppo ing disclosu es
ela es p ima ily o he en i onmen al sub ac o , meaning ha
he g oup o inancially dis essed companies can speak o sys-
ema ic g eenwashing.
The mo i a ion o such beha io could be based on he need o
a lowe cos o capi al and imp o ed inancing condi ions ha
can be achie ed h ough highe ESG sco es, he managemen 's
desi e o di e a en ion om inancial ailu e, o he manage-
ial incen i e sys em which ewa ds ESG objec i es ha may be
easie o achie e han inancial objec i es. In a ollow- up s udy,
he mo i a ions behind he ESG disclosu e policies o inan-
cially dis essed companies need o be analyzed in mo e de ail.
P esumably, howe e , a mix u e o a gumen s will be espon-
sible o a U- shaped ela ionship be ween he le el o inancial
dis ess and ESG sco es.
One limi a ion o he analysis is ha only lis ed US companies
a e aken in o accoun . Al hough by a he la ges s ock ma -
ke in he wo ld is conside ed, his does no gua an ee ha he
empi ical esul s a e ans e able o o he coun ies. Howe e ,
i can be assumed wi h a high deg ee o p obabili y ha a sim-
ila U- shaped ela ionship be ween inancial dis ess and ESG
sco es should also be obse ed in o he wes e n indus ialized
coun ies. In his con ex , he ques ion a ises as o whe he an
in e na ionally composed sample could no also be empi ically
in es iga ed. In ou iew, he e a e wo main easons agains
such an app oach: Fi s , he measu e o bank up cy isk based
on a bank up cy p edic ion model can only be accu a ely es-
ima ed o a speci ic coun y, as he legal de ini ion o bank-
up cy di e s ac oss coun ies. Second, ESG egula ions, ESG
p ac ices and co po a e cul u e may di e in di e en coun ies,
which also has an impac on ESG a ings. Fo hese wo easons,
he e is a ade- o be ween analyzing a consis en and unbiased
sample o a single coun y and analyzing an inconsis en and
po en ially biased sample o mul iple coun ies. We ha e cho-
sen o analyze a consis en and unbiased sample o lis ed US
companies.
6.2 | Implica ions
The managemen o ESG sco es by he g oup o inancially dis-
essed companies educes he alidi y and c edibili y o ESG
sco es and makes hem less eliable. Due o he obse ed man-
agemen o ESG sco es by he g oup o inancially dis essed
companies, i is impe a i e o conside a company's inancial si -
ua ion when in e p e ing ESG sco es. I ESG sco es a e iewed
in isola ion, hey may lead o an inco ec e alua ion o inan-
cially dis essed companies. As a esul , he me hodology o
de e mining ESG sco es in pa icula and ESG pe o mance in
gene al mus be sc u inized. A me hodology mus be designed
so ha ex ensi e dis o ions, such as hose p ac iced by he
g oup o inancially dis essed companies, a e no possible o a e
a leas shown anspa en ly. On he o he hand, he incen i es
ha lead o such oppo unis ic beha io by he g oup o inan-
cially dis essed companies mus be examined mo e closely.
The U- shaped ela ionship be ween he measu e o bank up cy
isk and ou di e en ESG sco es shows some ension be ween
ESG and he sus ainable inancial si ua ion o a company when
he company is inancially dis essed. Companies ha e o be sus-
ainable in wo espec s: Fi s , a company's ac i i ies ha e o be
sus ainable in e ms o en i onmen al, social, and go e nance
aspec s, measu ed by ESG sco es. Tha is an o e all objec i e o
he company's s akeholde s. Second, e e y company s i es o
ensu e i s con inued exis ence and no become bank up . The
iabili y o a company can be desc ibed by he measu e o bank-
up cy isk, which can be in e p e ed as he p obabili y o bank-
up cy i a logis ic bank up cy p edic ion model is applied. The
company's sha eholde s ha e he objec i e ha he company is
inancially heal hy and ha he con inued exis ence o he com-
pany is no jeopa dized. As a esul , he company has o ake
in o accoun ESG and i s inancial sus ainabili y as wo objec-
i es a he same ime.
A company's ESG ac i i ies and sus ainable inancial si ua ion
can be measu ed by wo sepa a e pe o mance measu es, such
as an ESG sco e and he measu e o bank up cy isk. Howe e ,
his sepa a ion, pa icula ly, leads o wo issues. Fi s , he ank-
ing o companies in ela ion o one o he wo pe o mance
measu es is inconsis en , as we obse ed inc easing ESG sco es
when a company becomes mo e inancially dis essed. A con-
sis en e alua ion o a company's sus ainabili y conce ning bo h
ESG and i s inancial si ua ion equi es a single measu e o i s
o e all sus ainabili y, including he inancial si ua ion. Second,
wo company objec i es and he associa ed pe o mance mea-
su es, such as an ESG sco e and he measu e o bank up cy isk,
may lead o se e e incen i e p oblems i a iable emune a ion
o long- e m ca ee de elopmen depends on hese pe o mance
measu es. I bo h pe o mance measu es a e addi i ely linked,
measu es a e i s aken o inc ease he pe o mance measu e
ha leads o he mos signi ican bene i wi h he leas use o e-
sou ces. I is plausible ha a high ESG sco e can be achie ed by
co po a e ac i i ies such as ex ensi e ESG epo ing a he han
ac ual ESG in es men s. In ha case, inc easing an ESG sco e
can be achie ed easie han imp o ing a company's inancial si -
ua ion, and a a ional decision- make is likely o ocus i s on a
company's ESG sco e.
A company's ESG ac i i ies and sus ainable inancial si ua ion
can be measu ed by one o e all sus ainabili y sco e i he ESG
sco e and he measu e o bank up cy isk a e mul iplica i ely
linked. I he measu e o bank up cy isk is in e p e ed as he
p obabili y o bank up cy, he p oduc o he ESG sco e and he
6398 Co po a e Social Responsibili y and En i onmen al Managemen , 2025
complemen a y p obabili y ha he company emains sol en
can be in e p e ed as he expec ed ESG sco e. The expec ed ESG
sco e assumes ha he cu en ESG sco e ep esen s he u u e
pe iod and addi ionally weigh s ha ESG sco e wi h he com-
plemen a y p obabili y ha he company emains sol en . This
o e all sus ainabili y sco e p o ides a sus ainabili y e alua ion
o a company ha will likely become bank up in he o eseeable
u u e. I a company is inancially dis essed and exhibi s an in-
c eased measu e o bank up cy isk, he o e all sus ainabili y
sco e is much smalle han he associa ed ESG sco e. The o e all
sus ainabili y sco e o a inancially dis essed company will be
dec eased as a company on he e ge o bank up cy is no sus-
ainable in any c i e ia.
The empi ical analysis demons a es a U- shaped ela ionship
be ween he measu e o bank up cy isk and ESG sco es. This
inding leads o he implica ion ha he en i onmen al, social,
and go e nance impac s o a company ha a e condensed in he
ESG sco e and he inancial sus ainabili y ha he measu e o
bank up cy isk mus be conside ed oge he , which applies, in
pa icula , o inancially dis essed companies. I ESG sco es a e
iewed in isola ion, hey may lead o an inco ec e alua ion o
inancially dis essed companies. In o de o ensu e he alid-
i y and in o ma i e alue o ESG sco es, including ESG sco es
o inancially dis essed companies, he ESG sco es should
be adjus ed by inco po a ing he p obabili y o bank up cy o
he complemen a y p obabili y ha he company emains sol-
en . This ask is u gen , as an inc easing p opo ion o lis ed
US companies a e expe iencing inancial di icul ies (Lohmann
and Möllenho 2023b). No wi hs anding his, he p esen s udy
shows ha s akeholde s and ESG a ing agencies should no be
blinded by ex ensi e ESG disclosu e and ha sha eholde s o i-
nancially dis essed companies mus insis ha boa ds add ess
inancial ma e s i s .
Acknowledgemen s
The au ho s ha e no hing o epo . Open Access unding enabled and
o ganized by P ojek DEAL.
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