Credit risk early warning for listed companies based on ESG information: evidence from China

This study investigates the credit risk early warning of environment, social, and governance (ESG) information using financial and market models. We find that the ESG rating is negatively associated with the corporate credit risk. The addition of ESG information has significantly improved the prediction accuracy of the credit risk early warning model. This result remains robust after considering ESG rating divergence and endogeneity. Further analysis shows that cash flow volatility is an important mechanism for ESG information to play a role in identifying corporate credit risk.