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Research Article
Vijay Kumar
The University of Waikato
Corresponding Author
ORCiD: https://orcid.org/0000-0001-9100-5728
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This work is licensed under a CC BY 4.0 License. Read Full License
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- The author has confirmed that a statement listing potential conflicts of interest or lack thereof is included in the text.
This paper examines the effect of firm environmental performance on firm financing during the COVID-19 outbreak. Crises in multiple forms curtail Micro, Small and Medium Enterprises (MSMEs) stability and the livelihood of hundreds of millions of people who derive their living from these activities. The way in which MSMEs deal with crises and the extent to which environmental performance is beneficial when the market suffers a negative shock is relatively unexplored in the literature. We consider three aspects of financing -- firm level liquidity, bank credit and bankruptcy probabilities -- and argue that it pays for firms to show commitment to environmental responsibilities in a global pandemic. Through an examination of 3,356 MSMEs, we find that firms with better environmental performance reduce their probability of bankruptcies and their liquidities decreasing during the COVID-19 pandemic. Furthermore, analysis shows that the impact of a firm’s environmental performance is more pronounced in sensitive industries (hospitality and retail). The results are robust based on a series of robustness checks, including propensity score matching and the Heckman two-stage sample selection model. Our study suggests that the trust between a firm and its stakeholders, if it is grounded on environmental performance, pays off when the overall level of trust in markets suffers a negative shock.
JEL Classification: F64; G01; Q14
Keywords
COVID-19, Micro, Small and Medium Enterprises (MSMEs), environmental performance, firm financing, environmental regulations
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A new preprint design is coming!
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This is a preprint, a preliminary version of a manuscript that has not completed peer review at a journal. Research Square does not conduct peer review prior to posting preprints. The posting of a preprint on this server should not be interpreted as an endorsement of its validity or suitability for dissemination as established information or for guiding clinical practice.
Research Article
Vijay Kumar
The University of Waikato
Corresponding Author
ORCiD: https://orcid.org/0000-0001-9100-5728
Badges
Prescreen
This manuscript passed our Prescreen assessment
Complete author information
Appropriate declaration statements
Potential risks to human health
Prescreen
History
CURRENT STATUS: Posted
Version 1
Posted 07 Oct, 2020
No community comments so far
Metrics
Comments: 0
PDF Downloads: ...
HTML Views: ...
License:
This work is licensed under a CC BY 4.0 License. Read Full License
Declarations:
Declarations
- The author has confirmed that a statement listing potential conflicts of interest or lack thereof is included in the text.
This paper examines the effect of firm environmental performance on firm financing during the COVID-19 outbreak. Crises in multiple forms curtail Micro, Small and Medium Enterprises (MSMEs) stability and the livelihood of hundreds of millions of people who derive their living from these activities. The way in which MSMEs deal with crises and the extent to which environmental performance is beneficial when the market suffers a negative shock is relatively unexplored in the literature. We consider three aspects of financing -- firm level liquidity, bank credit and bankruptcy probabilities -- and argue that it pays for firms to show commitment to environmental responsibilities in a global pandemic. Through an examination of 3,356 MSMEs, we find that firms with better environmental performance reduce their probability of bankruptcies and their liquidities decreasing during the COVID-19 pandemic. Furthermore, analysis shows that the impact of a firm’s environmental performance is more pronounced in sensitive industries (hospitality and retail). The results are robust based on a series of robustness checks, including propensity score matching and the Heckman two-stage sample selection model. Our study suggests that the trust between a firm and its stakeholders, if it is grounded on environmental performance, pays off when the overall level of trust in markets suffers a negative shock.
JEL Classification: F64; G01; Q14
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