The effect of board effectiveness, climate risk, and circular economy on corporate default risk: International evidence

Abstract This study investigates how climate change exposure, board effectiveness, and circular economy (CE) practices jointly influence corporate default risk, using 23,516 firm‐year observations from 65 countries (2003–2023). Employing panel regressions and 2SLS to address endogeneity, I find that climate risk significantly increases default likelihood. Effective boards reduce default risk and strongly moderate the negative impact of climate exposure, with this effect intensifying over time. Adoption of CE practices, including resource efficiency, emissions reduction, product responsibility, and environmental innovation, significantly enhances financial resilience. My findings highlight the critical value of integrating sustainability and governance into corporate risk models.