Investigating the mediating role of sustainability disclosure in the relationship between corporate governance and firm performance in Jordan

Abstract

PurposeThis study aimed to investigate the effect of sustainability disclosure (SD) as a mediator for the relationship between corporate governance (CG) and the performance of firms listed on the Amman Stock Exchange (ASE).Design/methodology/approachThe study analysed 405 reports of firms listed on the ASE from 2014 to 2018. The direct and indirect impact of governance mechanisms on the firms' performance was examined using STATA 15. A four-step procedure for testing mediation was used to determine the mediating role of SD.FindingsThe results demonstrated that the board and audit committees' effectiveness positively and significantly influences the firm's performance. Additionally, the results demonstrated that SD partially mediates the relationship between CG and the firm's performance.Research limitations/implicationsResearch implications – This study supported the assumptions of agency, resource dependence and stakeholder theories as the basis to explain the relationship among board’s effectiveness, audit committee’s effectiveness, sustainability report and firm performance in developing economies. In addition, the results suggested that CG helps to enhance the firm's performance and sustainability reporting. Firms providing sustainable report are deemed more responsible and attract more returns to firms. Research limitations – The study only focused on reports from five years for non-financial firms listed on the ASE to test the assumed relationship between the variables.Practical implicationsThis study contributed to the body of knowledge by examining the mediating role of SD between CG and firm performance. Investors, managers and regulators can obtain further insights, especially those seeking to improve a firm's performance in the emerging markets, through a sound CG system and extensive sustainability reporting.Originality/valueThis study focused on the direct and indirect impacts of CG and firm performance in an emerging and developing economy. The study used SD as the mediating variable in examining the indirect effect.