Market-based Performance Research Articles

Relationship of ESG scores on firm performance: Moderating roles of board size and CEO duality

The aim of this study is to examine the relationship between Environmental, Social and Governance (ESG) activities and the performance of Thai listed firms. The moderating roles of board size and CEO duality on this relationship are also assessed. The ESG score provided by LSEG (formerly Refinitiv) is chosen to measure ESG activities, both as an overall ESG combined scores and as Environment, Social, and Governance pillar scores. Multiple regression analysis is used to test the impact of ESG on firm performance while the PROCESS macro is used to test the moderating effects. Results reveal that the overall ESG combined score demonstrates no statistically significant effect on firm market-based performance. However, it shows the significant effects on firm performance for both the ESG combined score and the Environmental and Social pillar scores when moderated by board size and CEO duality; Governance pillar score exhibits no significant effect. Additionally, it is found that when the CEO operates only as the managing director and small board size and average board size are evident, higher ESG disclosure scores enhance firm performance. However, when the CEO serves as both managing director and chairman of the board of directors, and where there is a large board size, higher ESG disclosure scores diminish firm performance. This study contributes to the ESG literature and encourages companies to enhance their performance by implementing ESG combined activities with good governance policies.

Corporate governance effectiveness and firm performance in global crisis: evidence from GCC countries

Purpose This study aims to examine the impact of corporate governance (CG) effectiveness measured by board and audit committee index on firm performance of nonfinancial listed firms in Gulf Cooperation Council (GCC) countries, pre- and during the global crisis of COVID-19. Design/methodology/approach The analysis used 2,238 observations from nonfinancial firms listed on GCC countries' stock exchange, covering the period from 2017 to 2022, using a fixed effect panel regression model. The data for this study were manually collected from the annual reports of 373 GCC-listed firms. Findings The results demonstrate that the board's effectiveness index has a positive influence solely on accounting-based performance (return on assets) pre- and during the COVID-19 crisis. However, in terms of audit committee effectiveness, the results show a positive impact on market-based performance (Tobin’s Q) both pre- and during the COVID-19 crisis. Additional analysis indicates that the effectiveness of both the board and audit committee is more notable in larger firms compared to smaller firms. Practical implications This study is crucial for investors, regulators, managers and governments tackling the financial impacts of global crises like COVID-19. Its comprehensive evaluation of board and audit committee effectiveness guides policymakers and practitioners in enhancing CG for profit and wealth maximization. Originality/value This study offers novel evidence detailing the impact of CG effectiveness on firm performance over an extended period, encompassing the COVID-19 period and using a comprehensive index. In addition, this study was conducted in a unique CG setting, focusing on six emerging GCC countries.

ESG Performance as Determinant of Firm Performance: Accounting and Market - Based Approach

Stakeholders and regulators now consider environmental, social, and governance (ESG) activities as an important metric to measure the firm performance. The present study aims to analyze the impact of ESG performance on the financial performance of Indian firms. Considering a sample of 344 firms, the study employed the cross-sectional regression approach for data analysis. To measure ESG performance, proprietary data from CRISIL India was obtained through the public domain. Further, the current research applied accounting (measured by ROA) as well as market-based (Tobin’s Q ratio) measures to measure financial performance. Based on the results, the findings revealed that ESG performance exerted significant positive effect on the accounting performance of the firm but market-based performance was not affected by the same. The present study provides several suggestions for academicians, managers, and policymakers, by considering a sample of one of the largest emerging economies. Further, it also adds value to the growing literature in the domain of ESG and financial performance.

Effects of Social Media Content on a Firm’s Book-Based and Market-Based Performance

The success of companies is increasingly dependent on their online image. Therefore, the research has called for a better understanding of the characteristics of a firm’s online content that can enhance a firm’s performance. This study delves into the impact of social media content on both book-based and market-based performances of firms, drawing insights from 32 articles published between 2016 and 2022. The present article encompasses the categorisation and explanation of the economic effects of user- and firm-generated social media content, while also exploring cross-firm and cross-industry spillover effects. The study extends prior research that has primarily focused on the effects of one type of content or the other and only on some specific measures. Moreover, the study visually illustrates the economic effects of social media content on book-based and marked-based firm attributes. These insights provide a valuable resource for firms seeking to optimise their social media strategies to improve performance and for researchers choosing a research agenda.

Performance of gender diversity on board of directors: The case of Indonesia

This study further explores women’s role in top management in Indonesia, where men still dominate that position. This study underlines the role of women’s boards of commissioners in producing better financial performance in the specific sectors, manufacturing and service sectors, where the power of women to lead these sectors is more optimal. The sample is selected from the Indonesia Stock Exchange for the period 2009–2018. The final sample is 780 observations. This study applies panel data, which is more robust when controlling heterogeneity. Data panel regression is applied to analyze data. This study finds that gender diversity harms market-based performance, while from accounting-based measures, gender diversity has a significant positive effect. This study is applied explicitly in the manufacturing and services industrial sectors; therefore, carefully generalizing the results is necessary. Research in other specific sectors is very open to obtaining specific results in various industries, including developing countries other than Indonesia. The market has not trusted the role of women in top management; there is still a kind of ‘hidden distrust’ about the capabilities of women in running the top leadership captain. The market needs more substantial evidence to believe in women’s performance on the board of directors. Therefore, it is necessary to provide wider opportunities for women to sit on the board of commissioners, as much as men have.

Board gender diversity and bank performance in Jordan

Board diversity is crucial for corporate governance and improves corporate outcomes by aligning management with stakeholders’ interests. Compared to advanced environments, Jordan’s decent sociocultural backdrop exhibits a higher level of gender bias. This study investigates the influence of board gender diversity (BGD) on Jordanian banking sector performance, an under-explored area. This quantitative paper employs Ordinary Least Squares (OLS), random, and fixed-effect approaches to analyze 182 bank-year observations for balanced longitudinal data analysis. These approaches correctly establish the BGD-Tobin’s Q nexus during 2010–2022. The coefficient of determination was 70.57%. The model confirms a positive correlation between BGD and market-based performance indicators. Findings support agency and resource dependency hypotheses, showing BGD’s role in decision-making. Hence, a one-unit increase in BGD causes a 37.2-cent increase in Tobin’s Q measure. Moreover, a one-unit change in board independence, board meetings, size, women’s representation in top management, and capital adequacy ratio, assuming all other factors remain constant, results in Tobin-Q changes of 2.57 cents, 32.8 cents, 5.78 cents, 51.2 cents, 30.55 cents, and 22.86 cents, respectively, and the same direction. The results show how BGD enhances bank performance and contributes to relevant theories. The results are vigorous in a variety of identification and estimation methodologies.

The value relevance of environmental innovation: Evidence from European Union context

The 2030 Agenda for Sustainable Development has encouraged firms to develop innovations in order to reduce their impact on environment. Based on a sample of 492 non-financial listed firms in European Union, we examine the value relevance of environmental innovation over the 2016–2021 period. Results show an inverted U-shaped association suggesting that environmental innovation increases market value until a certain threshold. We also document that this optimum level is lower for smaller firms compared to larger firms and for firms from carbon-intensive industries compared to firms from low-carbon-intensive industries. Our study adds to the growing body of literature on environmental innovation, showing theoretical and empirical support for its beneficial role on market-based performance. It further provides practical implications for managers and investors.

Sustainable investment conditions and firm performance in the Middle East and North Africa: a holistic approach

ABSTRACT We analyze the effect of sustainable investment conditions on firm performance in the Middle East and North African countries. We measure sustainable investment conditions by the extent of market preparedness for sustainable investment and the percent of total assets under management qualifying for sustainable investment with and without Shariah-compliance characteristics. We use both accounting and market-based performance measures to capture alternative influences due to sustainable investment conditions. We control for firm-specific characteristics and country-level sustainability-related, economic, and institutional factors. We find that higher market preparedness is positively associated with all performance measures, whilst sustainable investment volumes are negatively associated with accounting measures of firm performance but positively associated with market performance. The effects remain broadly robust to various sensitivity tests and endogeneity analyses. Country-level institutions moderate the sustainability conditions effect. Our dominance analysis identifies the factors that are key in improving firm performance, providing clear directions for effective policy intervention.

The Graphical Information in Sustainability Reports and Corporate Performance: A Southeast Asian Case Study

The primary objective of this study is to evaluate the graphical information quality within sustainability reports produced by companies in Southeast Asia that voluntarily disclose such reports. Additionally, the research delves into examining the correlation between graphical sustainability reporting and corporate performance, encompassing both financial and market-based indicators. The study focuses on companies in Southeast Asia that submit sustainability reports through the global reporting portal (www.globalreporting.org). A total of 132 sustainability reports from 33 companies in the Philippines, Malaysia, Singapore, Thailand, and Indonesia were analyzed consistently over the period from 2016 to 2019. The quality of sustainability reports was assessed using the Graphical Information Disclosure Index (GIDI). The findings reveal that, despite a negative impact on accounting-based performance measured by Return on Equity (ROE), the GIDI score exhibits a positive influence on market-based performance. This underscores the significance of graphical information disclosure in sustainability reports, emphasizing its potential impact on enhancing market perceptions and overall corporate performance in the Southeast Asian context.

ESG disclosures and corporate performance: A non-linear and disaggregated approach

The present study explores the association between Environmental Social Governance (ESG) disclosure and the operational, financial, and market-based performance of Indian corporations. The ESG score has been disaggregated into three sub-parts, i.e., EDS, GDS, and SDS (environmental, social, and governance disclosure scores, respectively). Using a sample of 305 companies listed in the NSE 500 (the largest stock exchange in India), linear and non-linear relationships among the variables have been investigated. The data has been compiled from 2014 to 2022 since the Indian government implemented the CSR mandate from the year 2014. The linear results of the dynamic panel data analysis technique have indicated that ESG disclosures significantly impact the market performance of business enterprises. Further, the non-linear results have indicated a U-shaped association between the composite ESG score and market performance. The disintegration of ESG score has revealed that while the social and governance components have a positive linear relationship with all performance indicators, the environmental sub-component has a U-shaped relationship with market performance. Hence, as the findings indicate that ESG-related activities impact firms positively after reaching a threshold, long-term planning and substantial resources are required to be dedicated in this direction.

Capital Structure, Firm Performance and Risk Exposure: New Evidence from OECD Countries

Optimal capital structure is a key tool to take advantage of the trade-offbetween firm performance and risk. Based on this, we examine how optimalcapital structure influences corporate performance and risk exposure.We use a strong-balanced panel of 3,344 firm-year observations from 10different OECDcountries for 2006–2016. Results reveal that firms havingshort-term debt normally experience high accounting-based performancewhile lowering market-based performance, firms using long-term and totaldebt are largely exposed to decreased accounting and market-based performance.The higher the long-term and total debt, the greater the chancesthat firms become vulnerable to insolvency risk. Findings are robust acrossalternative indicators of capital structure, firm performance and risk, alternativemodel development and the two-step system GMM estimator tocontrol endogeneity issues. This research will be of importance to firmmanagers and policymakers in designing an appropriate capital structurefor maximizing firm performance while minimizing debt-taking risks.

Board gender diversity and firm performance: the moderating role of financial technology

Purpose In recent years, the field of financial technology (Fintech) has garnered significant attention due to advancements in technology, evolving consumer preferences and the growing need for financial services that are more accessible and user-friendly. The exponential expansion of Fintech is presenting novel prospects and obstacles for business. This study aims to investigate the relationship between gender diversity on corporate boards and firms’ performance, with a particular focus on the moderating role of Fintech. Design/methodology/approach The study sample consisted of financial sector firms listed on the Bahrain Bourse (banks and insurance firms) during the period 2016–2022. The data were gathered primarily from annual reports and the Bahrain Bourse website. The independent variable represents the percentage of female directors on corporate boards while firms’ accounting and market-based performance were measured using return on assets and Tobin’s Q variables. The moderating variable, Fintech, was measured using a checklist developed using the Global Fintech Adoption Index. Fixed effect (FE) regression was used to analyze the study data. An alternative gender diversity measure was used to test the reliability of the main regression analysis. Findings The results of the study indicate a positive relationship between gender diversity on corporate boards and financial performance. Additionally, the findings of the study highlighted the positive impact of Fintech practices on firms’ performance. Nevertheless, the impact of Fintech on the relationship between board gender diversity and corporate performance was found to be insignificant. Research limitations/implications The study sample included a particular sector in a single country, which may limit the generalizability of the findings. Also, the current study applied FE regression to analyze the data; however, other econometric approaches could be used to overcome the endogeneity issue. Practical implications The findings of this study may have implications for policymakers and society, particularly in terms of promoting gender diversity and Fintech innovation. Originality/value This study contributes to the existing body of research by examining the potential impact of the percentage of female directors and the utilization of Fintech on firms’ performance in Bahrain. Given the ongoing endeavors to provide advanced Fintech solutions in the financial sector and the increasing focus on enhancing gender diversity in Bahraini corporate boards, this research aims to provide additional evidence in this domain. Moreover, this study stands out as one of the limited number of research endeavors that use Fintech as a moderating variable in the investigation of the impact of female directors on firms’ performance.

CORPORATE SOCIAL RESPONSIBILITY AND MARKET-BASED PERFORMANCE: EXPLORING BI-DIRECTIONAL RELATIONSHIP IN AN EMERGING ECONOMY

Corporate Social Responsibility (CSR) is a critical indicator for bridging corporately responsible behavior and stakeholder inclusion towards achieving long-term development. While stakeholder and reputation-building theories suggest that CSR can affect organizational performance, slack resource theory proposes organizational performance can affect CSR. Accordingly, it indicates that CSR initiatives and firm performance have a bidirectional relationship. Despite many unidirectional studies conducted to examine CSR and firm performance interplay in diverse contexts, studies on bidirectional analyses to test contrasting theoretical standpoints in a single study are rare. However, examining the bi-directional role of CSR is crucial as it provides insights into using CSR as a strategic investment decision within the competitive organizational context. Therefore, this study aims to examine the relationship between CSR and market-based performance as a bidirectional study from an emerging country perspective. Study data was collected from the sustainability/CSR disclosures in annual reports published between 2011 and 2020 by the top hundred companies (identified based on market capitalization) listed on the Colombo Stock Exchange (CSE) in Sri Lanka using judgmental sampling. The CSR was measured using a weighted CSR score assessed based on a comprehensive CSR index with thirty sub-dimensions. Market-based performance was measured using earnings per share (EPS) and firm value, and the control variables were firm size and leverage. The data was analyzed in two phases to examine the two-way linkage between CSR and market-based performance using the fixed effect panel regression technique. The findings concluded that CSR positively impacts market-based performance, confirming the role of CSR as a strategic driver to enhance future profitability. However, the study could not find any bidirectional impact of market-based performance on CSR in an emerging context. Although higher CSR affects higher external performance, higher market-based performance does not affect increased CSR in Sri Lanka. It may be because external performance indicators represent only the future profitability of firms, and these indicators are generally highly volatile over a long period, especially in emerging countries like Sri Lanka.

Exploring the influence of financial technology on banking services in Nigeria

Purpose: This study explored the impact of fintech on Nigerian banking services. Research methodology: This study employed a quantitative research approach, analyzing data from the financial statements of selected Nigerian banks, and financial technology application statistics through econometric modelling and descriptive analysis. Results: The study found that Fintech positively impacts Nigerian banks' traditional and market-based performance measures. For example, statistically, a 1 per cent increase in ATM transactions could increase banks' earnings per share by up to N4 on average. This implies that fintech adoption in the Nigerian financial system can increase efficiency, reduce costs, improve the customer experience, and enhance financial inclusion. Limitations: This study had several limitations, such as the unavailability of data for some banks and the limited timeframe due to data unavailability. Contribution: This study contributes to the growing body of literature on fintech in emerging markets by providing insights into Nigeria’s evolving fintech landscape and its potential impact on traditional banking services. Novelty: This study is one of the first to investigate the impact of fintech on Nigerian banking services based on selected case studies and the quantitative research approach employed. This study provides valuable insights for policymakers, regulators, and industry practitioners seeking to promote a conducive environment for fintech growth in Nigeria’s banking sector.

Does Independence of Board Committees Enhance Corporate Performance? The Case of Russia

ABSTRACT This article analyzes the service of independent directors on audit, compensation, nomination, and strategy committees as a driver of book- and market-based performance using a sample of 77 Russian listed non-financial firms during the period 2009–2019. We address endogeneity using the Heckman correction procedure and instrumental variables. We find that committee independence not only positively affects firm performance but also moderates the relationship between committee structure and firm outcomes. Thus, the positive impact of government experience and female ownership on firm performance may be enhanced by the independence of certain committees.

Financial inclusion and market-based performance: empirical evidence from Syrian banks

PurposeFinancial inclusion is considered one of the strategic tools for sustainable development and one of the types of corporate social responsibility disclosures. This study aims to focus on the association between the disclosure of financial inclusion activities and Syrian banking companies’ performance.Design/methodology/approachDifferent regression models were suggested to examine the hypotheses leading to a better understanding of the relationship between financial inclusion and Syrian banking performance for the period 2005 to 2020 using the STATA 17.FindingsThe results showed a positive association between financial inclusion disclosure and Syrian bank performance, with low participation in financial inclusion activities (8%).Research limitations/implicationsThe study recommends that the Central Bank of Syria work on developing an index of financial inclusion for the Syrian environment, with the issuance of legislation and laws that obligate all listed banks to disclose their financial inclusion activities as a part of their social responsibility.Originality/valueThis study incorporates the relationship between the disclosure of financial inclusion activities and the performance of Syrian banking companies, which has been neglected by most studies on financial inclusion. Therefore, this study sheds light on this positive relationship, which could have important repercussions in reviving the deteriorating Syrian economy following the crisis it went through, which, in turn, led to Syria’s high inflation affecting the poor and vulnerable disproportionately.

The Heterogenous Effects of Carbon Emissions and Board Gender Diversity on a Firm’s Performance

This paper investigated the effects of carbon emissions and board gender diversity on firm performance using quantile regression. This approach explores the heterogeneity of the effect of carbon emissions on the performance of firms and overcomes some of the drawbacks of OLS regression. This research aimed to identify whether carbon emissions significantly impact firm performance using accounting- and market-based performance measures and how this impact varies according to a company’s size. Another objective was to determine how females on a board of directors could impact such a relationship. The data used were a sample of 1382 companies in emerging markets from 2008 to 2021. The findings show that carbon emissions negatively affect small-size companies consisting of both high-performing and low-performing companies; however, as the size of the companies increases, the effect of carbon emissions becomes positive regardless of whether they are high- or low-performing companies. The presence of females on a board has a minimally significant negative effect on a firm’s performance, irrespective of whether it is conditioned on size. This research contributes to the literature on the impact of carbon emissions on company performance, both conditional and unconditional on size. Furthermore, the results show that the relationship between carbon emissions and performance depends on size, as revealed using the novel econometrics model developed in this study. This study also shows the importance of the presence of females on a board of directors.

Does executive compensation matter to bank performance? Experimental evidence from Jordan

The high pays received by executives has gained global attention. This study examines the impact of executive compensation on the performance of Jordanian banks, an area that has not been explored much. The study uses empirical methods for data collection and analysis. Dependent variables include Return on Equity (ROE) and Tobin’s Q performance, while total compensation incentives is the main independent variable. Control variables include bank size, bank age, leverage, and female executives. Through balanced panel data analysis comprising 196 bank-year observations, this quantitative research paper applies Ordinary Least Squares (OLS), fixed-effect, and Generalized Method of Moment (GMM) methods. These methods accurately establish the compensation-performance relationship in the banking sector from 2009 to 2022. The coefficient of determination (R2) for the ROE model: 51.63%, Tobin-Q model: 39.33%. These robust models support the main finding that executive compensation is significantly and positively correlated with operating and market-based performance indicators. Results validate the agency hypothesis, indicating that executives are rewarded for bank performance indicators. Consequently, a one-unit increase in executive compensation leads to a rise of 22.8 cents in ROE and 29.51 cents in Tobin-Q. Additionally, bank size, age, leverage, and female executives positively impact bank performance indicators. A modification of BSIZE, BAGE, LEV, and FEMALE by one-unit results in a proportional adjustment of 26.1 cents, 16.6 cents, 2.07 cents, and 48.6 cents, respectively, in ROE. Additionally, a one-unit alteration in BSIZE, BAGE, LEV, and FEMALE corresponds to variations of 77.6 cents, 56.42 cents, 34.39 cents, and 48.8 cents, in Tobin-Q, all in the same direction.

ESG ratings and corporate financial performance in South Africa

PurposeThis paper examines the effect of ESG ratings and its dimensions (environmental, social and governance) on the financial performance of JSE-listed firms included in FTSE/JSE Responsible Investment Index.Design/methodology/approachThe paper employs panel data covering 40 JSE-listed firms included in FTSE/JSE Responsible Investment Index between 2015 and 2019. The paper employs the two-stage least squares (2SLS) instrumental variable regression technique to estimate the effect of ESG ratings and its dimensions (environmental, social and governance) on both accounting- and market-based performance indicators.FindingsThe results of the two-stage least squares instrumental estimation analysis reveal that investment in ESG initiatives improves both accounting- and market-based indicators of financial performance. Of the ESG pillars, the paper finds environmental initiatives improves firms' financial bottom line and market performance, while a firm's social and governance practices are observed to have no effect on a firm's accounting and market performance measures.Practical implicationsThe insights from this study proffers policy implications for firms' management, investors and regulatory authorities.Originality/valueAs far as the authors are concerned, this paper presents the first empirical analysis on the contribution of ESG ratings on financial performance in South Africa.

The bright and dark sides of ESG during the COVID-19 pandemic: evidence from China hospitality industry

PurposeThis study aims to investigate the bright and dark sides of environmental, social and governance (ESG) during the COVID-19 pandemic, including both the outbreak and recovery periods, for the Chinese hospitality industry.Design/methodology/approachUsing panel data of 564 firm-quarter observations from 2018 to 2020, the authors adopt fixed-effects regression estimation with standard errors clustered at the firm level. To address potential endogeneity concerns, the authors also use the two-stage least squares estimator with instrumental variables.FindingsThe results suggest that ESG plays different roles in market- and accounting-based performance during the COVID-19 outbreak and recovery periods. Specifically, ESG practices show a bright side as a reputation builder to mitigate the negative pandemic impact on market-based performance, whereas the dark side of ESG practices consumes firm resources to aggravate the negative pandemic impact on accounting-based performance during the coronavirus outbreak. These results also suggest hospitality companies benefit bountifully from ESG practices during the COVID-19 recovery.Practical implicationsESG plays a vital role for hospitality firms by providing insurance-like protection during and after the COVID-19 outbreak. Additionally, hospitality firms should evaluate their capability to adapt resource-consuming ESG practices.Originality/valueExisting hospitality COVID-19 studies have investigated the effect of ESG on firm performance within a short period with mixed results. This study extends the literature by showing the different effects of ESG practices on market- and accounting-based performance during the COVID-19 outbreak and recovery periods.