Environmental, social, and governance perfomance and default risk in the eurozone

This paper analyses the impact of sustainability through ESG factors on the default risk. The sample consists of 990 non-financial firms in the Eurozone over the period 2004-2020. The results show that ESG factors influence default risk, although this relationship could be influenced by the economic cycle. Also, the results highlight a significant interaction effect between firm size and ESG which affects default risk. Considering firm size by terciles, the evidence obtained shows that smaller and medium-sized firms have a positive net effect of a high ESG score on their default risk, while the opposite effect was found among larger firms.