Do Leverage and Carbon Risk Affect Financial Distress? Evidence from Asian Countries’ Automotive Industry

Abstract

This study intends to delve deeper into the effect of leverage and carbon risk on the financial distress of South East Asian, East Asian, and South Asian countries’ automotive industries. Quantitative research using logistic regression on Eviews 12 software was selected to achieve the research objectives. The examined data were collected from automotive companies listed in the Indonesia Stock Exchange, Stock Exchange of Thailand, Bursa Malaysia, Tokyo Stock Exchange, and National Stock Exchange of India in 2015-2021, with purposive sampling employed to select the sampled companies, resulting in 36 companies with 252 observation data. The analysis showed that leverage and carbon risk positively affect the automotive industry’s financial distress, while control variables consisting of inflation, company size, and company age affect financial distress. These findings bring implications for business owners, especially in the automotive sector, to consider the financial and carbon risk as the internal and external factors that could affect financial distress in running their business. Carbon risk was examined as a unique variable connected to this research context and rarely examined in financial distress studies. Carbon risk was included as the non-financial independent variable to determine whether external factors affect automotive companies’ financial distress.