Impact of Corporate Environmental Sustainability Information Disclosure on Financial Default Risk: Evidence From China

ABSTRACT As environmental concerns reshape corporate landscapes, understanding how Corporate Environmental Sustainability Information Disclosure (CESID) influences financial stability is crucial. This study explores the relationship between CESID and financial default risk in Chinese A‐share listed firms from 2009 to 2020, emphasizing the role of internal control quality and institutional investors as key moderating factors. Using Ordinary Least Squares (OLS) regression with firm‐ and year‐fixed effects, alongside robust econometric techniques including lagged variables, propensity score matching (PSM), entropy balancing, and alternative financial distress measures, we ensure the robustness of our findings. Our results show that higher CESID levels significantly reduce financial default risk, particularly in firms with strong internal controls and greater institutional investor presence. These findings align with agency theory, highlighting governance mechanisms that mitigate information asymmetry, and stakeholder theory, demonstrating how transparency fosters trust and reduces financial distress. This study contributes to the sustainability and finance literature by positioning CESID as a strategic tool for financial risk management in emerging markets. The findings provide important guidance for policymakers and business executives, highlighting the importance of robust governance structures, supportive regulatory measures, and greater transparency in strengthening financial stability and promoting long‐term sustainability.