Assessing the Impact of ESG on Financial Stability : A Dynamic Panel Study of Indian Corporates
Authors
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Pritika Dua
Assistant Professor (Corresponding Author), Department of Commerce, Indraprastha College for Women, University of Delhi, 31, Sham Nath Marg, Civil Lines, New Delhi, Delhi - 110 054
https://orcid.org/0000-0003-1463-2618
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Neha Nainwal
Associate Professor, Department of Adult and Continuing Education and Extension, Jamia Millia Islamia, Maulana Mohammed Ali Jauhar Marg, Jamia Nagar, New Delhi - 110 025
https://orcid.org/0000-0002-1603-223X
DOI:
https://doi.org/10.17010/ijf/2026/v20i9/175809Abstract
Purpose : This study examined the impact of Environmental, Social, and Governance (ESG) practices on the financial stability of Indian corporations and assessed whether the individual ESG dimensions are differently associated with financial stability.
Design/Methodology/Approach : The study used a dynamic panel dataset of 375 Indian companies over the period 2011–2022. Financial stability was measured using Altman’s Z-score, and ESG scores were sourced from Bloomberg ESG Data and Analytics. The relationships were estimated using the two-step System Generalized Method of Moments estimator, with the theoretical framework grounded in stakeholder, signaling, and agency theories.
Findings : Aggregate ESG performance was positively and significantly associated with financial stability. Among the individual ESG dimensions, only governance showed a positive but marginally significant association with financial stability, while the environmental and social dimensions were statistically insignificant. Financial stability was, on average, higher during the period captured by the COVID indicator.
Practical Implications : The findings offer guidance to businesses, investors, and policymakers on using ESG indicators, particularly governance, to assess and mitigate financial-distress risk in emerging markets.
Originality/Value : The study extended the ESG literature by disaggregating ESG into its component dimensions and examining their distinct associations with financial stability in India, an important yet underexplored emerging economy.
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