ESG peer effects and corporate financial distress: An executive social network perspective

Based on the data of listed firms in China from 2009 to 2020, this study investigates whether environmental, society and governance (ESG) peer effects reduce the risk of corporate financial distress from an executive social network perspective. Using two-stage least squares method, our empirical results suggest that the ESG peer effects exist in executive social networks, and the ESG peer effects can alleviate corporate financial distress. ESG subcategory analysis shows that the governance peer effect has the most obvious alleviating effect on financial distress. The negative impact of ESG peer effects on corporate financial distress is stronger when firms have high network power, network cohesion and network control in executive social networks. Our conclusions still hold after a series of robustness tests. Our research expands the literature on peer effects from the perspective of social relations, and sheds additional light on the critical role of ESG peer effects in financial risk management.