Environmental uncertainty and corporate bankruptcy risk: Insights from China

As the world is facing various uncertainties and conflicts, this study aims to explore the impact of environmental uncertainty on corporate bankruptcy risk. We also investigate whether this relationship is impacted by regional differences in China, differences in ESG performance, and the gender diversity of the board. Using an extensive sample of listed Chinese firms from 2010 to 2022, we find that the risk of corporate bankruptcy is higher in the presence of higher environmental uncertainty. In terms of regional differences, compared to the Western region of China, the corporate bankruptcy risk of firms in the Central and Eastern regions is lower, under the influence of environmental uncertainty. Interestingly, given the gender diversity of the executive board, our results show that female directors' participation does not reduce a firm's bankruptcy risk in the presence of environmental uncertainty. However, a higher environment, social and governance (ESG) score mitigates bankruptcy risk to a greater extent for firms above the median ESG level. Findings from this study have significant contributions and implications for the academic literature. In particular, the study expands on existing debates on environmental uncertainty and fills a research gap in bankruptcy risk. Moreover, by providing evidence that the region in which a firm is headquartered influences risk, the study contributes to practice and offers important insights for management/policymakers. • Risk of corporate bankruptcy is higher in the presence of higher environmental uncertainty. • The bankruptcy risk of firms in the Central and Eastern regions of China is lower than in the Western regions. • In the presence of environmental uncertainty, higher ESG scores mitigate corporate bankruptcy risk.