The impact of business ethics on ESG engagement and the effect on corporate financial performance: evidence from family firms

Abstract

PurposeThe increasing relevance of environmental, social and governance (ESG) engagement has attracted interest in its drivers and effects on business outcomes under different organizational settings. By focusing on family firms (FFs), we deepen both the role of business ethics as a predictor of enhanced ESG engagement and the link with improved corporate financial performance (CFP). In this way, we aim to provide new insights into the impact of business ethics and ESG engagement on FFs competitiveness.Design/methodology/approachBased on a worldwide panel of 335 FFs covering the 2002–2020 time horizon, this study adopts a two-stage Heckman model (1979) to empirically address two research questions: (RQ1) Do business ethics predict greater ESG engagement in FFs? (RQ2) Does ESG engagement positively affect the corporate financial performance (CFP) of FFs?FindingsThe results of the current study are twofold. First, we demonstrate that an ethical approach to business drives greater ESG engagement. Second, we show that higher levels of ESG engagement lead to improved financial performance in FFs.Originality/valueOur study contributes to filling the knowledge gaps regarding the drivers and effects of ESG engagement in FFs. On the one hand, we demonstrate the positive connection between dimensions that have their own identity, such as business ethics and ESG constructs. On the other hand, by shedding light on the impact of ESG engagement on improved CFP, we contribute to solving the trade-off between economic and noneconomic FF goals.