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This study examines the relationship between environmental performance, digital integration, information asymmetry, and default risk among European firms. It seeks to understand how sustainability and digitalization jointly enhance corporate financial stability. The sample comprises 1303 non-financial firms from 20 European countries over the period 2016–2023. This study uses a Thomson Reuters sample composed of European publicly listed companies with ESG (environmental, social, and governance) ratings. Europe represents an ideal setting for this analysis due to its dual green and digital transition, supported by some of the most advanced regulatory policies in the world. Methodologically, the analysis employs a dynamic panel model estimated using the two-step system GMM approach, complemented by a robustness check based on 2SLS-IV estimation to address potential endogeneity concerns. The empirical findings reveal that both environmental performance and digital integration significantly reduce default risk whereas information asymmetry increases it. Moreover, sustainability and digital transformation attenuate the adverse effect of information asymmetry on financial stability, confirming their complementary role as resilience-enhancing mechanisms. These results underscore the critical importance of transparency, innovation, and organizational capabilities in mitigating financial risk. Overall, the study makes an original contribution to the literature on sustainable governance by demonstrating that environmental performance and digital integration are not merely regulatory requirements but constitute strategic intangible assets that strengthen financial soundness and reduce default risk within the European context.
Quttainah et al. (Wed,) studied this question.