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Unraveling the ‘green-default paradox’: Assessing the influence of gender-diverse boards and socially responsible ratings

Lookup NU author(s): Dr Vu TrinhORCiD

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This work is licensed under a Creative Commons Attribution 4.0 International License (CC BY 4.0).

Abstract

We investigate the 'green-default paradox' and its connection to gender-diverse boards and socially responsible ratings in influencing the relationship between corporate climate change exposure and distance-to-default. Our analysis uses data from 2004 to 2021 across 42 countries, yielding several significant findings. First, our research challenges the 'green-default paradox' by demonstrating that companies with higher climate exposure exhibit a greater distance to default, indicating reduced default risk. Second, our findings suggest that the effectiveness of internal governance factors and external ESG assessments plays a crucial role in moderating this relationship. Specifically, our primary results are more pronounced in firms with greater gender diversity on their boards and higher ESG ratings. Gender-diverse boards signify a company's increased commitment to addressing climate issues, reduced information asymmetry, and improved internal oversight. ESG ratings, serving as an external assessment, reflect a company's exposure to social capital, trust, and a culture focused on stakeholders, all of which suggest enhanced climate risk management. Third, our study reveals a non-linear relationship between climate exposure and distance to default, indicating diminishing benefits beyond a certain exposure threshold.

Publication metadata

Author(s): Trinh VQ, Nguyen N, Le P, Nguyen TN

Publication type: Article

Publication status: Published

Journal: International Review of Financial Analysis

Year: 2025

Volume: 102

Print publication date: 01/06/2025

Online publication date: 20/02/2025

Acceptance date: 17/02/2025

Date deposited: 18/02/2025

ISSN (print): 1873-8079

ISSN (electronic): 1057-5219

Publisher: Elsevier

URL: https://doi.org/10.1016/j.irfa.2025.104011

DOI: 10.1016/j.irfa.2025.104011

Data Access Statement: Data will be made available on request.

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