Impact of ESG Controversies on Corporate Debt Maturity and the Moderating Role of Financial Constraints in Malaysia

Liew, Exian (2026) Impact of ESG Controversies on Corporate Debt Maturity and the Moderating Role of Financial Constraints in Malaysia. Masters thesis, Tunku Abdul Rahman University of Management and Technology.

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Abstract

Rising concerns regarding greenwashing and the inherent unreliability of voluntary sustainability disclosures have intensified the need to scrutinise realised environmental, social and governance (ESG) controversies as ground-truth indicators of corporate risk. These controversies pose significant threats to firm legitimacy and signal operational vulnerabilities, potentially prompting creditors to adopt defensive monitoring mechanisms by shortening debt maturity horizons. Such shifts in borrowing structures can fundamentally destabilise a firm’s financing equilibrium, particularly for financially constrained firms. This study investigates the relationship between ESG controversies and corporate debt maturity as well as the moderating role of financial constraints on this relationship by drawing on a sample of 73 non-financial firms listed on the Main Market of Bursa Malaysia over a 14-year period from 2011 to 2024. In this research, the regression models are estimated using a two-way fixed effects model. The empirical findings reveal no statistically significant direct relationship between ESG controversies and corporate debt maturity. The statistically insignificant results could be attributed to the limited occurrence of ESG controversies among the sample firms and the prioritisation of traditional financial criteria, such as firm size and tangible collateral, by Malaysian lenders. However, the results demonstrate that financial constraints play a significant moderating role. Contrary to the initial hypothesis, this study finds that for financially constrained firms, maintaining a clean ESG record functions as a vital certification mechanism that enhances credibility and facilitates access to longer-term credit facilities. Several important implications can be derived from this research. First, it provides policymakers with valuable guidance for strengthening the enforcement mechanisms for ESG controversy reporting by mandating independent third-party assurance to enhance signal credibility and introducing green-transition incentives for resource-constrained firms that maintain impeccable sustainability records. Besides, the results may assist public listed firms in recognising that proactive controversy mitigation functions as strategic collateral, where a clean ESG track record acts as a vital certification mechanism to bridge information asymmetry and secure longer-term financing. Finally, this study offers insights for financial institutions to integrate realised controversies as high-fidelity, supplementary signals within their credit risk frameworks, allowing for a more robust evaluation of a borrower’s underlying governance robustness and true default risk profile.