Does ESG Predict Business Failure in Brazil? An Application of Machine Learning Techniques

Mehwish Kaleem; Hassan Raza; Sumaira Ashraf; António Martins Almeida

doi:10.20944/preprints202410.0622.v1

Preprint Article Version 1 This version is not peer-reviewed

Version 1 : Received: 8 October 2024 / Approved: 8 October 2024 / Online: 9 October 2024 (08:58:01 CEST)

The aim of this study is to explore the influence of Environmental, Social, and Governance (ESG) factor on business failure in Brazil by employing advanced machine learning techniques. We collected data from 235 companies and conducted Principal Component Analysis (PCA) on 40 variables already used in the bankruptcy failure literature, resulting in the formation of 7 variables that predict business failure. The results indicate that ESG factor significantly predict business failure in Brazil. This study has implications for investors, policymakers, and business leaders, offering a more precise tool for risk assessment and strategic decision-making.

Environmental, Social, and Governance (ESG); Business Failure in Brazil; Principal Component Analysis (PCA); Machine Learning Techniques; Confusion Matrix; Precision Score

Business, Economics and Management, Finance

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Does ESG Predict Business Failure in Brazil? An Application of Machine Learning Techniques

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