Iman Harymawan, - and Fajar Kristanto Gautama Putra, - and Bayu Arie Fianto, - and Wan Adibah Wan Ismail, - (2021) Financially Distressed Firms: Environmental, Social, and Governance Reporting in Indonesia. Sustainability, 13 (18). pp. 1-18. ISSN 2071-1050

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Abstract

This study examines the relationship between financial distress and environmental, social, and governance (ESG) disclosure. We hypothesize that financially distressed firms are tempted to enhance ESG disclosure as it provides higher performance in terms of financial and market perspectives. ESG disclosure needs substantial resources, which financially distressed firms may not be able to provide. In Indonesian settings, we find that financially distressed firms have lower ESG disclosure quality than non-distressed firms. Our results are robust due to lagged variable, Heckman’s two stages, and coarsened exact matching regression showing consistent results. Furthermore, our results are consistent with three years of rolling windows of financial distress and all sections of ESG reporting, except the general information section. This study extends the scope of prior studies by focusing on firms’ eagerness to provide higher quality ESG disclosure, particularly distressed firms.

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