Corporate Sustainability Culture as a Shield Against Financial Distress: Evidence from NSE-Listed Indian Firms

Abstract

The financial indicators of leverage, liquidity, profitability and operational efficiency have historically been used to measure corporate financial distress. But today's corporate landscape recognizes a culture that is focused on sustainability as an important strategic driver for corporate resilience. This study examines whether sustainability culture is a buffer against financial distress of the NSE listed Indian companies. The study is based on the Stakeholder Theory, Resource Based View, Legitimacy Theory and Organizational Resilience Theory and defines sustainability culture as an institutional capacity, which refers to environmental responsibility, stakeholder engagement, governance ethics, and sustainability oriented strategic orientations. The study builds a Corporate Sustainability Culture Index (CSCI) based on a set of sustainability governance indicators, ESG disclosures, CSR engagement, environmental commitments and sustainability oversight at the board level, using a simulated dataset of 500 firm-year observations from 100 non-financial firms listed on the NSE between 2020 and 2024. The financial distress indicator is based upon the Altman Z score model with additional robustness analysis from a binary distress classification model. The results of the panel regression analysis also show that there is a significant negative relationship between corporate sustainability culture and financial distress, suggesting that companies with higher sustainability-oriented culture of the organization are financial resilient. The results suggest that sustainability culture goes beyond compliance to being a strategic organizational talent and a driver of adaptive resilience, stakeholder trust, and long-term financial health. The study helps to fill the interdisciplinary research gaps between sustainability culture and financial distress literature and offers implications for corporate governance, strategic management and policy development in emerging markets.