The Role of ESG Performance in Moderating the Impact of Financial Distress on Company Value: Evidence of Wavelet‐Enhanced Quantile Regression With Indian Companies

Abstract

ABSTRACT This study presents a novel examination of the influence of environmental, social, and governance (ESG) scores on the resilience of financially distressed Indian companies, integrating a wavelet‐enhanced quantile regression approach. The analysis, rooted in the context of the Paris Agreement and sustainable finance, employs a comprehensive dataset of the top 512 listed Indian companies from 2012 to 2023. Our findings reveal that high ESG scores significantly bolster company resilience during financial distress, highlighting the dual benefits of sustainable practices on corporate stability and environmental impact. Additionally, the paper underscores the pivotal role of wavelet analysis in capturing the multifaceted effects of ESG scores across various industries and financial distress quantiles, thereby offering a more nuanced understanding of ESG impacts. These insights not only contribute to the academic discourse on sustainable finance but also offer practical implications for policymakers and corporate strategists aiming to align financial performance with sustainable development goals (SDGs). ESG scores at which financial distress no longer negatively affects the firm's value are provided. These ESG scores range between 33.153 and 33.456 and are driven by the median of the conditional distribution of the firm's value. Policy implications are discussed.