Does environmental, social, and governance performance affect financial risk disclosure? Evidence from European ESG companies

Abstract

Purpose

This study aims to investigate the effects of environmental, social and governance (ESG) performance on financial risk disclosure of European companies. It analyzed the relationships between ESG factors and financial risk disclosure between 2010 and 2020.

Design/methodology/approach

To test their hypotheses in this study, the authors used the multivariate regression analysis on panel data using the Thomson Reuters ASSET4 database and the annual reports of 154 European companies listed in the ESG index between 2010 and 2020.

Findings

Empirical evidence shows a positive association between European companies' environmental and governance performance with financial risk disclosure, whereas social performance does not influence financial risk disclosure. Concerning the control variables, the findings demonstrate that firm size and profitability are significant factors in changing the financial risk disclosure. Nevertheless, firms’ leverage is insignificantly correlated with financial risk disclosure.

Originality/value

This study extends the stream of accounting literature by focusing on the financial risk disclosure, a topic that has received little attention in previous research. Furthermore, to the best of the authors’ knowledge, this study is one of the first that provides ESG companies with evidence of the effect of ESG factors on financial risk disclosure in a developed market like Europe.

Citation

Chouaibi, J., Benmansour, H., Ben Fatma, H. and Zouari-Hadiji, R. (2023), "Does environmental, social, and governance performance affect financial risk disclosure? Evidence from European ESG companies", Competitiveness Review, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/CR-07-2023-0181