Governance Indicators Research Articles

Taking ESG strategies for achieving profits: a dynamic panel data analysis

PurposeThe goal is to investigate the relationship between financial performance and environmental, social and governance (ESG) indicators and disclosures for a sample of Latin American firms.Design/methodology/approachDynamic panel data regressions are used to analyze a sample of 114 companies listed on the Latin American Integrated Market, MILA (Chile, Colombia, Mexico and Peru) for the period 2011–2020. The Altman Z-score and Piotroski F-score are used as indicators of the probability of default and comprehensive financial strength. Models are developed in which the relationship between economic value added (EVA) and Jensen’s alpha are evaluated against firms’ ESG practices.FindingsA direct relationship between ESG strategies and financial performance was found. Better practices and transparency in ESG are related to lower probability of bankruptcy, greater financial strength, greater EVA and superior risk-adjusted returns.Research limitations/implicationsESG data were obtained from the Bloomberg system based on a methodology that may differ from other sources. The sample covers four Latin American countries and large corporations. Independent variables were selected for their perceived validity, given their frequent use in previous studies.Practical implicationsEvidence for company management regarding the importance of strengthening ESG practices and reporting should be part of their balanced scorecards. For investors, the results support the importance of evaluating ESG practices in asset selection.Originality/valueThe present study is the first research to present empirical evidence on the relationship between ESG scores and disclosures for MILA countries, using a comprehensive set of financial performance indicators (Altman Z-scores, Piotroski F-scores, EVA and Jensen’s alpha).

The Paradox of Progress towards SDG7: Governance Quality and Energy Poverty Dynamics in Pakistan

This study investigates the multidimensional aspects of energy poverty in Pakistan from 2000 to 2022, specifically evaluating the direct, indirect, and total effects of socioeconomic and environmental factors. We employed Partial Least Squares Structural Equation Modeling (PLS-SEM) to examine the impacts of income, population, governance quality, energy intensity, fuel prices, and renewable energy consumption on energy poverty. The study further contributes by examining the mediating role of governance quality and developing the World Governance Indicators (WGI) Index. The findings indicate significant negative effects of energy intensity and renewable energy consumption on energy poverty. Conversely, population growth and income levels demonstrate positive effects, contradicting conventional economic development and energy access assumptions. Governance quality establishes direct and indirect effects that mediate most relationships between independent variables and energy poverty. Bootstrapping analysis confirms the significance of governance quality as a mediator. The model describes significant energy poverty variance with robust predictive relevance. This study emphasizes the need to adopt a comprehensive strategy to decrease Pakistan’s energy poverty by articulating socioeconomic, environmental, and governance factors. Our findings offer valuable information for policymakers to achieve UN Sustainable Development Goal 7, embarking on governance reforms, promoting sustainable growth, and enforcing investments in energy efficiency and renewable sources as Pakistan approaches the 2030 SDG 7 deadline.

Sustainability indices nexus: Green economy, ESG, environment and clean energy

In this article, we examine the spillover effects and connectedness among four prominent sustainability-related indices. We analyze daily data spanning from August 8, 2014, to April 12, 2023, to explore the interrelationships among the Green Economy Index, the World Environmental, Social, and Governance Index, the Global Environment Index and the Global Clean Energy Index. Particularly, we observe a clustering characteristic where both the Green Economy Index and the World Environmental, Social, and Governance Index exhibit a net-contributing behavior, especially during and after the COVID-19 outbreak. Global Environment Index, on the other hand, exhibits a net-receiving role, which became strong during the COVID-19 outbreak. Further, the Global Clean Energy Index demonstrates a neutral role, although it shows a net-receiving trend after the year 2022. Finally, dynamic analysis confirms the evolving nature of these interconnectedness measures, highlighting their sensitivity to events and shifting economic conditions over time.

Do public governance and financial shocks effect public health? Empirical evidence from MENA region

Financial shocks have an incredible socioeconomic effect on both developed and developing countries. Various recent studies demonstrated that bad public governance impacted public health across all nations. In fact, this study aims to use panel data for 21 countries from the Middle East and North Africa (MENA) region over the period 2000–2020 to scrutinize the effect of both governance and financial crises on public health. We use the generalized method of moments (GMM) approach to carry out the empirical analysis. The objective of using this method is to deal with the issue of endogeneity between exogen variables. Results outline that there is a significant positive association between public governance indicators and public health. Moreover, we found a strong negative association between financial shocks and public health. Thus, the direct negative impact of financial crisis on public health could be mitigated by the indirect positive impacts via institutions and good public governance. This study gives insights to policymakers to take appropriate measures to decrease the severity of the financial shocks and improve healthcare services.

The Impact of the Sarbanes-Oxley Act on Takeover Protection Provisions

We investigate the effects of the Sarbanes-Oxley (SOX) Act on corporate governance metrics, such as the takeover protection provisions and the governance index (G-index). We look at provisions related to takeover protection such as severance agreements, indemnity contracts, golden parachutes, compensation schemes, director liability and indemnity. We examine the effects of SOX between the two periods, designating the 1998–2000 timeframe as the pre–SOX period and the 2002–2004 timeframe as the post–SOX period. Then, in order to determine whether these provisions were affected in any way after 2004, we compare the values from 2004 to the values from 2006. We discover that between the pre-SOX and post-SOX periods, the G-index mean score had increased, indicating a declining degree of total shareholder rights. When we examine the six protection provisions, we discover that two of them—compensation plans and golden parachutes—had deteriorated (i.e., the percentage of firms using these measures had increased) and four of them—indemnification contracts, severance agreements, director indemnity, and director liability—had improved. Put differently, following the passage of the Act, businesses began to select different takeover protection options. However, the SOX's long-term effects were restricted to two variables only. After 2004, the proportion of companies employing golden parachutes climbed (i.e., negatively), whilst the percentage of companies utilizing severance agreements decreased (i.e., positively). We conclude that, in general, the SOX Act had a favorable effect on the majority of the measures that we looked at, with the exception of two measures: golden parachutes and compensation schemes.

Effect of Technical NTMs on Indian Exports to ASEAN: What Role Do Logistics and Governance Capabilities Play?

Technical non-tariff measures (NTMs) represent a commonly employed set of trade policy tools with well-documented implications for international trade. However, this study seeks to delve deeper into the underlying factors shaping these trade effects, focusing specifically on Indian exports to the Association of South-East Asian Nations (ASEAN). This study posits that domestic institutional and infrastructural conditions play a pivotal role in influencing the impact of regulatory measures such as technical NTMs. By leveraging logistics and governance indicators to assess these conditions, the research adopts a novel two-stage analysis approach. Initially, the study quantifies the trade effects of technical NTMs, which subsequently serve as the dependent variable in the second stage. The findings uncover nuanced patterns specific to indicators and NTM categories, with a notable emphasis on the significance of importer (ASEAN) indicators over exporter (India) indicators. Moreover, this article introduces an innovative methodological framework that transcends conventional analyses of technical NTMs, aiming to pinpoint the precise factors driving their effects for targeted improvement strategies.

The synergetic effect of economic complexity and governance on quality of life: policy thresholds

This study aims to bridge the empirical research gap in governance-modulating effects on the link between a country’s productive structure and individuals’ well-being. In doing so, this study utilizes the economic complexity index to quantify a country’s productive structure and the social progress index to measure quality of life. The empirical strategy relies on the system-GMM approach, covering 75 developing countries from 2011 to 2021. The following conclusions were drawn from the empirical analysis. (1) Economic complexity and governance consistently and unconditionally improve quality of life. (2) Governance substantially modulates economic complexity to enhance quality of life, generating an overall positive net effect. (3) The results remain robust and consistent across several GMM specifications, regardless of whether the six governance indicators compiled by the World Bank were clustered using principal component analysis into four categories (i.e., general, political, economic, and institutional) or used individually. (4) Of the six governance indicators, government effectiveness, the rule of law, and control of corruption were found to be particularly significant, as were economic and institutional governance. (5) An additional threshold analysis was implemented to identify the critical governance levels that further improve quality of life. The thresholds for complementary policies are then established as follows: 0.8435, 1.846, and 1.717 for government effectiveness, rule of law, and corruption control, respectively, and 5.59, 3.14, and 3.32 for general, institutional, and economic governance, respectively. Consequently, economic complexity and governance are necessary and sufficient to improve well-being below these thresholds. Complementary policies are, however, necessary to sustain the overall positive impact beyond these thresholds. The findings of this study provide insights into complementary policies for leveraging economic development to improve the well-being of developing countries.

Goals and Pathways of Public Governance Contribution to Achieve Progress in the Quality of Life

This research examines the importance of effective public governance in maximising the well-being of citizens in EU member states. Our research strategy used an integrated modelling framework involving data mapping and an autoregressive model with distributed lags (ARDL) for 2012–2022 in the EU member countries. The results demonstrated that the World Governance Indicator (WGI) has a mixed impact on Quality of Life (QL). In the short term, the impact is positive if there is an increase in the level of the public governance indicator, and in the long term, the effect of public governance on the quality of life is negative due to the challenges associated with implementing reforms. Additionally, our results highlighted that, to improve citizens’ quality of life, policies should focus on increasing the Purchasing Power (PP) and Safety of Society (SS) as well as on issues related to Pollution (P) and the Cost of Living (CL). There are similarities between the long-term ARDL analysis estimate and the short-term one, with the latter pointing out that they will be able to have quick positive effects, while pollution and increased living costs have immediate adverse effects on quality of life.

Rule of law, corruption and transparency impacts on green growth of East Asian economies

This paper highlights the necessity for nations to adopt green growth strategies to achieve economic prosperity, social equity, and environmental sustainability. By examining governance indicators in six East Asian economies from 1995 to 2021, it finds that a 1% increase in the rule of law boosts green energy deployment by 0.33%, while a 1% rise in corruption reduces it by 0.25%. Similarly, a 1% increase in transparency leads to a 0.45% rise in green energy. Higher income levels encourage green energy adoption, with a 1% increase in income resulting in a 0.19% boost, whereas a 1% rise in income inequality decreases deployment by 0.32%. The paper suggests policies to enhance the rule of law, promote transparent governance, reduce income inequality, and encourage inclusive growth to support green growth objectives.

Assessing China's energy transition pathway: Insights from the synergistic effects of key drivers

China's energy transition is a pivotal component of global efforts to combat climate change. This study identifies the synergistic effects of key factors driving this transition, including social-technology-economic, policy, investment, governance indicators. Asymmetric nexus impacts are explored by using quantile-on-quantile regression (QQR) method. Further, the synergistic effects of key drivers on China's energy transition are examined by model 1–4. The findings show that reconciling the tradeoffs of reducing coal emissions and promoting clean energy are crucial for China's energy transition. Urban growth, environmental taxes, financial development, and strong environmental governance and institutional quality significantly support these efforts, but show different synergistic effects scenarios. These findings also reinforce the need for a more inclusive response to China's energy sustainability challenges, in particular, coordinated policies and strategies in coal-reliant industrial sectors are critical for a successful energy transition.

The impact of corporate governance on firms' propensity to innovate - multidimensional and cross-country analysis

The study examines the correlation between corporate governance ratings, a crucial element of the Environmental, Social, and Governance (ESG) index provided by Thomson Reuters, and companies' inclination towards innovation. Employing a cross-country analysis, the research explores how governance ratings influence corporate innovation decisions. The results reveal a positive association between corporate governance scores and the implementation of innovative practices. Notably, board effectiveness, commitment, vigilance, and compensation structure significantly impact firms' innovation levels. The study further demonstrates that the positive relationship between ESG ratings and innovation is particularly pronounced in companies with larger, more diverse boards, active audit committees, and well-structured compensation systems. This research enhances our understanding of how robust corporate governance frameworks can drive innovation by fostering transparency, accountability, and a positive work environment. Such governance structures mitigate risks, deter unethical behavior, and promote long-term corporate sustainability. Consequently, the study suggests that organizations should prioritize strong corporate governance practices to bolster their innovation capabilities. The findings underscore the pivotal role of corporate governance in shaping firms' innovative potential, contributing valuable insights to the intersection of governance and innovation in the corporate landscape.

Is national economic growth associated with environmental social and governance performance of firms?

AbstractThis study delves into the effect of environmental, social and governance (ESG) indicators on economic growth trajectory of an emerging economy. A sample of firms listed on the ESG index of the National Stock Exchange (NSE) was examined. The findings reveal a positive and statistically significant relationship between ESG performance indicators and economic growth represented as gross domestic product (GDP) per capita. The sample is further segregated into energy and non‐energy sectors, where the aggregate ESG scores exhibited a statistically significant influence on economic growth in both sectors. However, upon a closer examination of the individual ESG pillars, the governance pillar is observed to exert a negative influence on economic performance in non‐energy firms. In contrast, the environment and social pillars show no significant influence. The analysis then employs a unique approach by applying a Difference‐in‐differences estimator to assess the impact of Business Responsibility and Sustainability Reporting (BRSR) regulations, which confirms a positive impact on economic growth after regulations but exclusively within the non‐energy sector. This study underscores the substantial impact of ESG aggregate and individual scores on GDP per capita, which translates to economic growth.

Research on the Impact of Digital Transformation on Corporate ESG - A Case Study of Jingdong Logistics

The purpose of this research is to analyze the impact that digital transformation has on the environmental, social, and governance (ESG) elements of businesses by using Jingdong Logistics as a case study. Jingdong Logistics' environmental, social, and governance (ESG) indicators have been impacted both directly and indirectly by the digital transformation that the company has undergone, as indicated by the study of data changes and measures taken both before and after the transition. This digital transition has led to huge reductions in greenhouse gas emissions, which is good news for the environment; but, it also creates challenges in terms of energy consumption requirements. Although there has been an increase in the number of training hours and a drop in the number of workplace injuries, there has been an increase in the number of full-time employees, while there has been an increase in employee turnover. Even though there was an increase in the number of vendors, anti-corruption incidents decreased. Regarding the governance side of things, improvements were made to data security and transparency. According to the findings of the inquiry, digital transformation had a positive impact on the environmental, social, and governance (ESG) of Jingdong Logistics; nevertheless, it also brought up new challenges that call for continued attention and growth.

The Information Disclosure of Environment, Social and Governance and Its Impact on the Financial Performance of Sinolink Securities

In the context of China's efforts to achieve "carbon peak", "carbon neutrality" and sustainable development, companies are transitioning to low-carbon business models by reporting environment, social and governance (ESG) indicators. This research aims to explore the practice of ESG-related information disclosure in the financial industry and analyze the impact on corporate performance. This research takes Sinolink Securities Co., Ltd. as an example, the disclosure of relevant information can be realized through corporate ESG reports, and then conduct comparisons from multiple aspects based on the relevant data from 2018 to 2022 to study the correlation between ESG and corporate performance. The research found that: 1. The company's ESG rating is generally at a leading level, and its specific performance in environmental, social, and corporate governance aspects is improving year by year. 2. There is an overall positive correlation between corporate performance and ESG practices. The improvement of ESG levels will help improve corporate performance and provide a solid foundation for the sustainable development of enterprises.

The Impact of Environmental Governance and Quality of Life on Fertility Intentions

Objectives: Here, local environmental governance, quality of life, and fertility intention in 30 provinces, municipalities, and regions of China during 2004–2020 are also examined in terms of their co-evolution pattern. Methods: A detailed analytical method of evaluation is used by our team. It entails the determination of the environmental governance index, quality of life index and fertility intention index in order to examine their inter relacion with each other the variation and distribution within regions. Results: Our research is also demonstrated by the fact that as a whole the values of the environmental governance index and the quality of life index are increasing nationwide, which indicates that China is also experiencing certain positive changes for the better regarding environmental protection and the quality of life. Nonetheless, fertility intention index trend was characterized by increase then decrease, apparently indicating the underlying socioeconomic factors. Regional comparisons show that the East is the best place for environment governance and quality, and the fertility intention index of Northeast remains lower than other areas. Conclusions: China has become one of the advanced countries in environmental governance and improved quality of life, but the continuously decreasing level in fertility intention reflects the complex effect of changes in population policy and soci:economic factors.

Financial and ESG Analysis of the Beer Sector Pre- and Post-COVID-19 in Italy and Spain

This study compares the analysis of the financial statements of the brewing sector in Italy and Spain due to its growth in both Mediterranean countries and its relationship with other sectors of activity of great importance in these countries. The web transparency of the sustainability indicators of the brewing sector in both countries is also analyzed, following the new regulatory framework, EU Directive 2022/2426, on sustainability information, in order to analyze, in an integrated way, the financial and sustainability information which they report for a sustainable development of the sector, in line with the Sustainable Development Goals and the European Green Deal. The methodology used involved compositional data, which are reliable at an accounting and statistical level; such data allow us to value the financial health of the sector and its relationship with the web exploration of the communication of its environmental, social, and corporate governance indicators. The results indicate a solvency of the sector in the short term, with poor margins, especially in the pandemic, which recovered in 2021 due to the sector’s resilience. On the other hand, there is a clear need to study the costs and margins of the sector in depth to improve the quality of the beers and to project the sector. The web analysis reveals acceptable transparency at the environmental level and poor transparency at the social and corporate governance level, with differences between the two countries and the population under study.

Resilience of developing economies to external shocks: empirical evidence from CEMAC countries

PurposeThis study aims to investigate the effects of three significant events – the 1994 CFA currency depreciation, the 2008 Global Financial Crisis (GFC), and instances of political coups – on the relationships between FDI inflow, economic growth, and governance within the Central African Economic and Monetary Community (CEMAC) countries. It seeks to evaluate how these events influence the linkages between FDI, economic growth, and governance, to aid the understanding of responses to external shocks and internal political disruptions.Design/methodology/approachThe study employs a panel Vector Autoregression (VAR) analysis using data from 1990 to 2019 by exploring the dynamic relationships among FDI inflow, economic growth, and aggregate governance indicators within the CEMAC sub-region. The analysis was conducted utilizing the EViews software package, facilitating robust examination through the introduction of the Bayesian VAR to facilitate the interpretation of parameters and the data.FindingsThe results indicate that, contrary to initial hypotheses, growth and governance do not emerge as determinants for attracting FDI within the CEMAC sub-region. However, governance stands out as a crucial determining factor for economic growth. Furthermore, the study suggests that the 1994 CFA currency depreciation, the 2008 GFC, and instances of political coups did not significantly impact FDI, growth, and governance within these countries. Despite the potential vulnerability of the CEMAC countries to external shocks, the effects of these events on the dynamics of FDI, economic growth, and governance were not apparent. Notably, political instability, as evidenced by coups, emerges as a significant factor shaping the interactions between FDI, growth, and governance in CEMAC countries.Research limitations/implicationsThese findings have significant implications for policymakers and stakeholders in the CEMAC countries. Understanding that governance has a central role in driving economic growth places great importance of prioritizing governance reforms to foster sustainable development. Moreover, the identification of political instability as a key determinant affecting the relationships between FDI, growth, and governance emphasizes the need for political stability and effective governance structures to attract and sustain FDI inflows as well as foster economic growth.Originality/valueThis study contributes to the existing literature by offering insights into the linkages between FDI, economic growth, governance, and external shocks within the CEMAC sub-region. By examining the specific impacts of the 1994 CFA currency depreciation, the 2008 GFC, and political coups on these dynamics, the study provides original perspectives on the resilience of CEMAC countries to external and internal disruptions.

Application performance and innovation effect of ESG indicators in corporate governance under the background of green development

Application performance and innovation effect of ESG indicators in corporate governance under the background of green development

Revisiting the nexus between governance and poverty in Sub‐Saharan Africa

AbstractThe aim of this study is to investigate the influence of different components of governance on poverty. Hence, the study investigates the direct impact of four pillars of governance and 16 subindicators of governance on poverty in Sub‐Saharan Africa (SSA). This is unlike most previous studies that use a composite index of governance which does not have a bearing on specific policy variables. A panel data set of 41 SSA countries over a period from 2012 to 2022 is analyzed using the System GMM (Generalised Method of Moment) estimation technique. The findings show that improvement in the four pillars of governance (security and rule of law; participation, rights and inclusion; foundation for economic opportunity; and human development) would yield significant reduction of poverty in SSA. However, not all the sub‐indicators have a direct impact on poverty, those that show significant effects are: (a) rule of law and justice, (b) accountability and transparency, (c) anticorruption, (d) public administration, (e) infrastructure, (f) rural development, (g) social welfare, and (h) sustainable environment. All the significant indicators have bearing on the creation and protection of an enabling environment and opportunity for productive activities. Hence, it is recommended that policymakers should undertake judicial system reforms including reforms of the police services. Civil service reform is also recommended, while the business of government should be carried out transparently with zero tolerance for corruption.

Debt maturity, governance and investment efficiency: new evidence from emerging market

PurposeThis study investigates the combined influence of corporate governance (CG) and debt maturity (DM) on the investment inefficiency among non-financial 506 NSE-listed firms in India between 2009 and 2022. Additionally, this study also investigates the moderating effect of short-term debt (STD) maturity concerning the relationship between CG and investment inefficiency.Design/methodology/approachUtilizing the residuals extracted from the Biddle et al. (2009) investment model, three different forms of investment inefficiency (investment inefficiency, overinvestment and underinvestment) were measured. To measure the internal governance of firms, a new corporate governance index (CGI) was developed using 65 new governance stipulations, whereas STD was measured as short-term debt divided by total debt. Interaction effects between CG and DM were also estimated. Employing CGI and STD along with firm-specific control variables, many pooled regression models were estimated. Endogeneity issues were addressed through two-stage least squares. Robustness checks were also conducted using the two-step system GMM, alternative measures of dependent and independent variables.FindingsThe findings demonstrate that higher CG and shortened DM increase investment efficiency. This evidence implies that firm-level governance and short-term debt reduce information asymmetry and increase management oversight. Additionally, the evidence suggested that shortened DM and CG complement one another to increase investment efficiency, suggesting companies that utilize STD to a greater (lesser) extent demonstrate a greater (lesser) impact of CG in reducing investment inefficiency.Practical implicationsThis work first advocates the establishment and implementation of robust corporate governance mechanisms to control agency conflicts, moral hazard, adverse selection and limit opportunistic behavior of managers for improving investment efficiency. Second, since interaction effects suggest a complementarity between CG and DM, it is advocated that STDs can be used to achieve optimal investment choices to control moral hazards and adverse selection and discourage suboptimal investment levels.Originality/valueThis work provides new evidence concerning the effects of CG and DM on various forms of corporate investment efficiency (investment inefficiency, overinvestment and underinvestment, using alternate measures) in an emerging economy like India having a unique institutional framework and macroeconomic environment using a newly developed firm-specific CG index for a large sample of companies using recent data.