Board governance and ESG performance in Tokyo stock exchange-listed automobile companies: An empirical analysis

Abstract

The study investigated the impact of board characteristics on the ESG (Environmental, Social, and Governance) performance of automobile companies listed on the Tokyo Stock Exchange. It aimed to discern how corporate governance affects these firms, focusing on both medium and larger-sized companies. The central research question was: How do board characteristics impact the ESG performance of automobile companies? Data from Thomson Reuters Eikon for 32 automobile companies, spanning 2005 to 2021, were analyzed, with the companies categorized into medium (15) and larger-sized (17) classifications. The study employed random and fixed effect models and utilized Hausman specification tests to validate the consistency and efficiency of the fixed effect model against the random effect model. To address endogeneity, a two-step robust GMM methodology was applied. Results revealed intriguing findings: board gender diversity and meetings had a negative and insignificant impact on ESG performance, while non-executive directors had a detrimental and significant effect. Conversely, board size, educational background, CEO dual roles, and independent board members positively and significantly influenced ESG performance in these automobile companies. Given the significant impact identified, it is recommended to reconsider the composition of non-executive directors. A more balanced approach could mitigate the observed detrimental effect on ESG performance.