Abstract
Shifting from short-term profit maximizing strategies to more sustainable long-term ones, the corporate world has been exerting extra effort to adopt environmental, social, and governance (ESG) performances. However, the loop question remains unsolved: is ESG financially-driven or is financial performance (FIN) ESG-driven? Building on the slack resources theory and bridging three management literatures, this analysis relies on a six-year panel dataset of multinational organizations from different industries. A distributed lag regression model is proposed to empirically investigate the impact of FIN performance on ESG and to test the moderator effect of total quality management (TQM). The findings reveal a stimulus effect between free cash flow (FCF) and ESG scores. While the interaction between TQM and FCF has a negative effect on ESG, the interaction between TQM and Tobin’s Q reveals a positive relationship with ESG. This study sheds further insights for both research and practice towards the operationalization of sustainability management.
Highlights
Model 1 displays the estimations for the overall ESG score; whereas Models 2, 3, and 4 show the results of the segregate scores for each dimension: environmental (ENV), social (SOC), and governance (GOV), respectively
These results indicate that financial performance has a higher statistical effect on the environmental and social pillars of sustainability practices (Table 4)
This study empirically investigates the nexus between financial performance (FIN) and ESG performances, examines the moderating role of total quality management (TQM) on this link, and sheds further light on the financialsustainability association at a cross-national level
Summary
Publisher’s Note: MDPI stays neutral with regard to jurisdictional claims in published maps and institutional affiliations. This study intends to examine the effect of FIN on ESG scores, including total quality management (TQM) as a moderator of this association. While the motives behind implementing ISO (both ISO 9000 and/or ISO 14000) might vary among countries, the common aim converges toward quality and environmental management [34] It was described as “tangible proof” providing evidence of the organizations capacity to efficiently and effectively manage resources, taking into account stakeholders’ satisfaction [35]. We anticipate that the starting point is the FIN performance, which is considered as a “slack resource” to achieve a “collective” goal (i.e., adoption, investment, and engagement in ESG practices). It attempts to combine finance, sustainability, and operations management disciplines. Section five highlights the conclusions and limitations of the study
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