Circular economy and firm-specific risks: A risk management perspective

For the first time in the literature, this paper studies the individual and interactive effects of circular economy practices, i.e., reducing, reusing, and recycling, on idiosyncratic and default risks from a risk management perspective. We use a sample of 1150 listed EU non-financial companies over the period 2010–2022. We find that reducing, reusing, and recycling, implemented together, significantly decrease idiosyncratic and default risks. However, considering the three circular economy practices individually, only reducing and reusing have an impact on these risks, while recycling does not. Moreover, when applied pairwise, reducing, reusing, and recycling have a substitutive effect in decreasing idiosyncratic and default risks.