The effects of environmental sustainability and R&D on corporate risk-taking: International evidence

- We examine the effects of environmentally sustainable practices (ESI) and R&D intensity on corporate risk-taking.
- Both individual and joint effects are positive and significant. Country-level determinants play a complementary role.
- Voluntary sustainable practices generate a positive and significant effect on corporate risk-taking.
- The individual and joint effects are stronger in countries with better institutional qualities and infrastructures.
- The effect of ESI is stronger in countries with higher CO2 emissions, energy usages and stringent environmental policies.

In this paper, we ask an important question: can firm-level environmentally sustainable practices and research and development (R&D) intensity individually and jointly affect corporate risk-taking? Using firm-level data from 41 countries spanning 2002-2013, we find environmentally sustainable practices and R&D intensity enhance the risk-taking of firms. Voluntary sustainable practices generate a positive and significant effect on corporate risk-taking. We also find that country-level determinants play a complementary role. Firms operating in countries with better intellectual property rights protection and overall infrastructure benefit more from environment-friendly practices and R&D intensity. Further, we find that ESI has a positive effect on risk taking in countries with higher CO2 emissions per capita, energy usages per capita and more stringent environmental policies. These results are robust after correcting for potential endogeneity, alternative measures of R&D intensity or ESI score. Overall, our findings provide key insights on policy recommendations at the national and international levels.