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Lookup NU author(s): Professor Habiba Al-ShaerORCiD
This work is licensed under a Creative Commons Attribution 4.0 International License (CC BY 4.0).
Purpose: Growing social concerns and ecological issues accelerate firms’ environmental, social, and governance (ESG) engagement. Hence, our study aims to advance the existing literature by focusing on the interplay between institutional and firm governance mechanisms for greater ESG engagement. More specifically, we investigate whether public governance stimulates excessive ESG engagement and whether corporate governance moderates this relationship. Methodology: Using a sample of 43,803 firm-year observations affiliated with 41 countries and 9 industries, we adopt a country, industry, and year fixed-effects regression analysis. Findings: We find that public governance strength via its six dimensions stimulates excessive ESG engagement. This implies that firms in countries with strong voice and accountability, political stability, government effectiveness, regulatory quality, rule of law, and control of corruption are more motivated for ESG engagement. Furthermore, corporate governance negatively moderates the relationship between all public governance dimensions (except political stability) and excessive ESG engagement. This implies that public governance and corporate governance are substitutes in encouraging firms to commit to ESG. Further tests reveal that whereas these results in the baseline analyses are valid for developed countries, they are not valid in emerging markets. Originality: This study contributes to the recent literature investigating the role of corporate governance mechanisms in excessive ESG engagement. The study also explores whether public governance is associated with greater ESG involvement and provides a comprehensive analysis of the association between six indicators of public governance quality and excessive ESG practices in developed and emerging economies. Research Implications: The findings support the interplay between institutional and agency theories. In countries with strong (weak) institutional mechanisms, corporate governance becomes weak (strong) in inciting greater stakeholder engagement. This implies that the public governance mechanism alleviates agency costs, rendering internal mechanisms of corporate governance non-compulsory for ESG engagement. Practical Implications: The findings suggest that emerging countries need to reinforce their institutions for greater accountability, regulatory quality, and control of corruption, which will have a domino effect on firms in addressing stakeholder expectations. The results also advise emerging country firms to augment their internal monitoring mechanisms for greater stakeholder engagement, such as structuring boards and establishing corporate social responsibility mechanisms, committees, and policies.
Author(s): Kuzey C, Al-Shaer H, Karaman A, Uyar A
Publication type: Article
Publication status: Published
Journal: Corporate Governance
Year: 2023
Volume: 23
Issue: 7
Pages: 1748-1777
Print publication date: 03/11/2023
Online publication date: 13/06/2023
Acceptance date: 16/05/2023
Date deposited: 16/05/2023
ISSN (print): 1472-0701
ISSN (electronic): 1758-6054
Publisher: Emerald Publishing Limited
URL: https://doi.org/10.1108/CG-01-2023-0028
DOI: 10.1108/CG-01-2023-0028
ePrints DOI: 10.57711/xpe1-wa80
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