Environmental and Social Moderating Effect on Corporate Governance in Brazilian Companies

Abstract

The study aims to analyze the moderating effects of environmental and social performance (pillars of ESG performance) on the relationship between corporate governance mechanisms (board size, CEO duality, board independence, and gender diversity) and company performance. The sample consisted of 96 Brazilian companies organized in an unbalanced panel. The analysis period covered the years 2016-2020 and was conducted using robust panel data regression. The main results revealed that environmental and social performance have a negative moderating effect on the relationship between CEO duality and accounting performance and a positive moderating influence on the relationship between board independence and market performance, while for accounting performance, only environmental moderation shows an effect. A positive moderating effect of social performance was observed in the relationship between board gender diversity and accounting performance. As contributions, this research aimed to incorporate new evidence on the effects of corporate governance mechanisms on performance by exploring the impact of environmental and social performance in this relationship. In practical terms, the study demonstrates that in Brazilian companies, larger boards and CEO duality can enhance organizational performance, challenging the traditional practice of avoiding power concentration. Furthermore, the research contributes by exploring new angles regarding environmental and social practices that have proven essential for moderating the relationship between governance and performance, suggesting that companies should strengthen their ESG initiatives to maximize returns and attract investors.