Abstract

Purpose: Based on the concepts of contingency theory, the performance of a company is the result of matching of its characteristics with the factors that reflect the company's situation. Based on this theory, Organizational factors such as competitive strategies, can explain which companies and for what reasons have better financial performance and are less exposed to experiencing financial distress. The integration of financial performance and environmental, social and governance performance criteria in competitive strategies significantly contribute to the firms financial stability. The purpose of this research is to investigate the role of environmental, social and governance performance and financial performance of the company on the relationship between competitive strategies and financial distress.

Method: Six research hypotheses using the information of 166 firms listed in the Tehran Stock Exchange in the period 2013 to 2022 (1660 company-year observations) and using regression were tested and analyzed.

Results: Competitive strategies (cost leadership and differentiation) have a negative and significant relationship with financial distress, Environmental, social and managerial performance as well as financial performance moderate the relationship between competitive strategies (cost leadership and differentiation) and financial distress.

Conclusion: According to the teachings of contingency theory, the development of companies competitive strategies is affected by the context and environment in which the company operates, cost leadership and differentiation due to its positive effects on the company's performance, reduces the possibility of experiencing financial distress. The alignment of environmental, social and governance performance as well as appropriate financial performance has led to the strengthening of the negative relationship between competitive strategies and financial distress of companies and further reduces the risk of their bankruptcy.

Contribution: Integrating environmental, social and governance principles in competitive strategies, It has positive effects for society and the environment, this can be a good guide for managing companies to benefit