Navigating firm financial distress in turbulent times: The impact of the institutional context

Abstract

This paper explores the impact of environmental practices on firm financial distress during the COVID‐19 pandemic in both emerging and developed countries. Analysing a sample of 12,181 firm observations from 2016 to 2021, our results indicate that adopting of environmental practices leads to reduced financial distress and more crisis‐resilient economies. The mitigating effect of environmental practices is more pronounced in developed countries. This study provides crucial implications for governments and policymakers, emphasizing the importance of encouraging firms to adopt environmental practices to reduce the likelihood of default.