ABSTRACT This study investigates the relationship between financial constraints and a firm's sustainability performance. Our empirical analysis utilises a panel of 40,445 observations from 9466 listed non‐financial firms across 44 countries, spanning the period from 2002 to 2019. We provide strong evidence that financial constraints significantly hinder a firm's corporate sustainability performance. Further analyses show that a firm's climate exposure affects the negative impact of financial constraints on sustainability performance. In other words, firms exposed to climate change tend to show greater commitment to sustainability practices regardless of their financial constraints. However, we find no evidence that external and public attention to climate change issues persuades financially constrained firms to enhance their sustainability performance. Our study offers new insights into the link between financial constraints and corporate sustainability, as well as the implications of climate exposure and public attention to climate change.
Xu et al. (Mon,) studied this question.
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