This study examines the association between ESG risk, sustainability assurance, and firms’ financing constraints in an emerging market.
This study applies panel regression analysis to 75 firm-year observations of liquid and highly visible non-financial firms listed on the Indonesia Stock Exchange between 2019 and 2023. Financing constraints are proxied by the Kaplan–Zingales (KZ) Index, where higher KZ index values indicate greater financing constraints.
The results show a nuanced ESG risk–financing constraint relationship. ESG risk is marginally associated with the KZ index in the baseline model; however, the direction differs from the predicted relationship and is sensitive to the robustness specifications. Sustainability assurance is not significantly associated with financing constraints, suggesting that binary assurance does not function as a strong financing signal in this sample. Firm size is negatively and significantly associated with financing constraints, whereas leverage is not significantly associated.
This study contributes to the sustainable finance literature by examining ESG risk as a substantive risk signal and sustainability assurance as a credibility-enhancing mechanism in Indonesia, where ESG regulation, assurance practices, investor awareness, and governance systems are still evolving.
