Do environmental disclosures act as a safety belt for mitigating financial distress? Investigating moderating roles of corporate and national governance

Abstract

Purpose

The objectives of the study are threefold. The primary objective is to examine the impact of environmental disclosures (ED) on financial distress (FD) situation of the companies. The second objective is to investigate the impact of internal (corporate governance score) and external governance (national governance index) structure on FD. And third is to examine the ED–FD nexus with the interaction of both governance structures.

Design/methodology/approach

Using eight years of panel data for the 254 non-financial companies, and applying two-way fixed effects models, we arrive at our statistical estimates.

Findings

The results indicate that an increase in ED scores reduces FD. While corporate governance is insignificant to FD, national governance is effective in reducing FD. Interestingly, corporate governance negatively moderates the linkages between ED and FD, while national governance does not exhibit any such interaction effects.

Originality/value

We contribute to the existing literature by being the pioneer study to test the relationship between ED and FD for a sample of Indian companies and that too, with the moderation of internal and external governance structures.

Citation

Arora, A. and Singh, K. (2025), "Do environmental disclosures act as a safety belt for mitigating financial distress? Investigating moderating roles of corporate and national governance", Managerial Finance, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/MF-08-2024-0569