The role of ESG in default early warnings

Abstract

The purpose of this article is to verify whether there is a research gap referring to the potential application of ESG-related information in bankruptcy early warning signals. There is a problem of a strong information asymmetry in the enterprise-investor relationship, with the issuer being the privileged party. The problem is so urgent that, undoubtedly, the global effect of the crisis caused by the COVID-19 pandemic will be a sharp increase in the number of economic entities threatened with insolvency and bankruptcy. The question then arises – can environmental, social and governmental (ESG) criteria be used as elements of the bankruptcy early warning system? The study covers the time period beginning January 2016 through June 2021 and includes scientific indexed in the Web of Science Core Collection database provided by Clarivate Analytics. The following research hypothesis guides this study: There is a research gap referring to the role of ESG-related information in bankruptcy early-warning systems. To verify the hypothesis (H0) the model was built, based on the concept of citations count regression (Staszkiewicz, 2019). The study confirmed the existence of a research gap indicated in the research hypothesis. Possible legal obligation referring to the disclosure of certain ESG-related, standardized information sets would be helpful to diminish the market information asymmetry. Research shows, that strong regulatory activities support the ESG-compliant performance of a business venture (Ortas et al., 2019). Also, standardization of ESG rating criteria and evaluation process would be helpful in this matter and would endure comparability of sourcing data and outcome.

The impact of ESG ratings on the market performance of commodity stock sector before and during the COVID-19 pandemic

“…In the activities of large companies, including these of commodities sector, there is often no room for compromise between profitability and sustainability, meaning a business approach that creates long-term shareholder value by embracing opportunities and managing risk from economic, environmental, social and governance dimensions (Lo & Sheu, 2007). The obligation to meet the diverse expectations of stakeholders is associated with ESG challenges on various levels (Grygiel-Tomaszewska & Turek, 2021). It is worth paying attention main issues that are taken into account in ESG rating methodologies of different ESG rating agencies (see Table 1).…”