Essays on Corporate Failure, Risk Pricing, and ESG Information

Carvalho, Maria Francisca and Izzeldin, Marwan and Soccorsi, Stefano (2026) Essays on Corporate Failure, Risk Pricing, and ESG Information. PhD thesis, Lancaster University.

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Abstract

This thesis examines how climate-related and sustainability risks shape corporate vulnerability and asset pricing dynamics in the U.S. market. It comprises three empirical studies that collectively explore the interaction between firm characteristics, environmental exposures, and financial performance, contributing to the field of sustainable finance. The first study investigates corporate failure risk in the U.S. energy sector using logit and Cox proportional hazard models. It shows that energy firms do not uniformly face higher or lower failure risk compared to non-energy contra-parts; rather, failure risk is conditional on factors such as leverage, input price volatility, and emissions intensity. The analysis highlights the relevance of environmental indicators, including ESG combined scores and CO2 emissions, in predicting default risk. The second study examines the pricing of climate risk in asset markets, with an emphasis on state-level climate vulnerability in the U.S. market. By integrating climate transition and physical risk measures at the national and subnational level, it demonstrates that state-specific climate conditions, economic uncertainty, and temperature anomalies significantly influence portfolio returns. Ignoring state-level climate exposure leads to suboptimal asset allocation and underestimation of risk. Lastly, the third study assesses whether ESG ratings contain persistent informational value by decomposing ESG connectedness into short- and long-run components using frequency-domain methods. The results reveal horizon- and sector-dependent pricing effects, with long-term ESG components predicting future returns for both green and brown firms. Overall, the thesis provides new evidence on how climate and sustainability risks propagate through corporate distress channels, market pricing mechanisms, and long-horizon ESG information.