Thomson Reuters Database Research Articles

Financial decision dynamics: Environmental, social, and governance factors and managerial choices in emerging markets

This study examines the linkage between the ESG performance of firms and managerial decision-making. It uses 8 years of ESG performance data of 110 Indian firms collected from the Thomson Reuters database. The study finds that high ESG performance mitigates a firm’s cost of debt more than equity cost. Furthermore, increases in ESG performance are associated with higher capital expenditures, lower investment cash flow sensitivity, higher cash holdings, and lesser payout of increased cash flows to shareholders. The findings are in sync with the Slack resources view, suggesting that the requirement of financial Slack for ESG-related innovations and risk-bearing is large and impacts the major managerial decisions of firms. While the effects of environmental and social performance on these decisions are similar to that of the composite ESG performance, governance performance shows an independent impact on the payout decisions of firms. The Granger Causality test reveals a bi-directional association between debt issues and ESG performance. The main results obtained from the multiple panel regressions are robust to additional tests involving lead-lag analysis. The overall findings of this study highlight the importance of ESG performance screening in the managerial decision-making process of investors who would not like to risk growth potential for a short-term increase in dividends.

Boosting Corporate Value through ESG Excellence in Oil and Gas Sector

The research investigates the impact of Environmental, Social, and Governance (ESG) excellence on the corporate valuation in the oil and gas sector, addressing the problem of quantifying ESG's influence on market worth. The study utilized a comprehensive dataset from the Thomson Reuters database, covering 960 global firms over the period 2011-2022. Through empirical analysis, the study revealed that while ESG excellence directly correlates negatively with corporate valuation, its indirect benefits through enhanced profitability and operational efficiency are significant. Specifically, ESG excellence improves operational efficiency, which in turn positively impacts market value. The study found no direct significant impact of ESG excellence on profitability, but enhanced operational efficiency mediated by ESG leads to increased corporate valuation. These findings highlight the importance of converting ESG efforts into tangible financial benefits, emphasizing profitability and operational efficiency as key mediators. The study concludes that ESG practices, when effectively integrated into business strategies, significantly enhance a firm's market value and operational efficiency. This research provides actionable insights for policymakers, corporate strategists, and investors, promoting the adoption of robust ESG practices to achieve sustainable growth and long-term financial success in the oil and gas sector. Future research should focus on industry-specific analyses, longitudinal studies, and the development of sophisticated ESG metrics to further elucidate these relationships.

Mesocorticolimbic and Cardiometabolic Diseases-Two Faces of the Same Coin?

The risk behaviors underlying the most prevalent chronic noncommunicable diseases (NCDs) encompass alcohol misuse, unhealthy diets, smoking and sedentary lifestyle behaviors. These are all linked to the altered function of the mesocorticolimbic (MCL) system. As the mesocorticolimbic circuit is central to the reward pathway and is involved in risk behaviors and mental disorders, we set out to test the hypothesis that these pathologies may be approached therapeutically as a group. To address these questions, the identification of novel targets by exploiting knowledge-based, network-based and disease similarity algorithms in two major Thomson Reuters databases (MetaBase™, a database of manually annotated protein interactions and biological pathways, and IntegritySM, a unique knowledge solution integrating biological, chemical and pharmacological data) was performed. Each approach scored proteins from a particular approach-specific standpoint, followed by integration of the scores by machine learning techniques yielding an integrated score for final target prioritization. Machine learning identified characteristic patterns of the already known targets (control targets) with high accuracy (area under curve of the receiver operator curve was ~93%). The analysis resulted in a prioritized list of 250 targets for MCL disorders, many of which are well established targets for the mesocorticolimbic circuit e.g., dopamine receptors, monoamino oxidases and serotonin receptors, whereas emerging targets included DPP4, PPARG, NOS1, ACE, ARB1, CREB1, POMC and diverse voltage-gated Ca2+ channels. Our findings support the hypothesis that disorders involving the mesocorticolimbic circuit may share key molecular pathology aspects and may be causally linked to NCDs, yielding novel targets for drug repurposing and personalized medicine.

Business strategy and stock price crash risk: The mediating role of financial constraints

The global financial crisis increased uncertainty in economic policy. Firms manage challenges through business strategies and financial constraints and deal with crash risk more proactively to overcome these impediments. This paper investigates the mediating role of financial constraints in the association between business strategy and crash risk, and the type of business strategy that influenced crash risk in Egyptian firms from 2014 to 2021. Data were obtained from financial statements and reports available in the Thomson Reuters database. A total of 792 observations were collected, representing 99 Egyptian firms. The statistical techniques employed in the analysis included ordinary least squares, modified least squares, and path analysis. The results indicate that a higher financial constraint ratio increases crash risk and has a mediating effect on business strategy and crash risk. Results show a positive impact of prospector strategy on crash risk using OLS and GLS, in line with the bad news hoarding hypothesis. Further research shows that prospector strategies have a positive effect on financial constraints. Egyptian firms have higher levels of information asymmetry, which leads to adopting a prospector business strategy and exerts a more pronounced positive influence on the likelihood of crash risk. A robustness check confirms the positive effect of financial constraints as a mediator variable on the relationship between prospector business strategy and crash risk.

Multilevel Analysis of Gender Equity Disclosure

Objective: The objective of this study is to investigate gender equity, with the aim of analyse the impact of country, sector, and company characteristics on corporate gender equity disclosure. Theoretical Framework: The main concepts and theories that underpin the research are institutional theory with National Business System (NBS) approach. Method: We collected information on gender equity disclosure from 3,726 companies in 58 countries over a 10-year interval from the Thomson Reuters database. Than, we use hierarchical analysis to link the degree of disclosure obtained by companies with variables at the macro, medium, and micro levels. Results and Discussion: We found that the equity disclosure is particularly sensitive to company characteristics such as trade union representation, company size or board gender diversity. Country characteristics, such as enforcement capacity, pressure from unions, popular participation, and economic development positively affect gender equity disclosure. The sector does not present statistical significance to explain variations in gender disclosure. Research Implications: These findings show that theoretical aspects of National Business System and multilevel characteristics approaches do provide empirical support to explain gender equity and its disclosure and help to resolve gender issues Originality/Value: This research fills the gap resulting from the lack of multilevel analysis on gender equity disclosure and helps identify which level and characteristics prevail and have the greatest impact. Therefore, the results guide the intervention of different social spheres to promote gender equity.

Corrupt practice and sustainability reporting: Lifecycle perspective

AbstractThe study employs a lifecycle perspective to investigate the relationship between corrupt practices and sustainability reporting. The final sample is composed of 1388 firms from four European countries, namely France, Germany, UK, and Sweden. Data were retrieved from the Thomson Reuters database from 2015 to 2022. The findings revealed that corruption significantly reduces sustainability disclosure across different life cycle stages, albeit with varying magnitudes, perhaps due to the misallocation of resources and lack of incentives. The findings also showed that the detrimental effects of corruption on sustainability reporting is most profound during the “Shake‐Out” stage of a company life cycle. By adopting a lifecycle perspective, the research offers a new and in‐depth understanding of corruption's impact on environmental disclosure, offering policymakers and regulators valuable insights into enhancing environmental and sustainability practices.

The Effect of ESG, Cost of Capital, and Woman Board on Indonesia Firm Performance

In this study, the primary objective is to examine the influence of ESG (Environmental, Social, and Governance), cost of capital, and woman board on firm performance of Indonesian companies. The OLS (Ordinary Least Square) approach is used in this study to examine how ESG, cost of capital and woman board affect firm performance, which is assessed through the measurement of Return on Assets (ROA). The companies listed in the Thomson Reuters database with an observation period between 2020 until 2022 make up this study's population, and sample data was acquired through the application of purposive sampling method, totaling 117 samples. According to the research results, it is inferred that ROA is impacted significantly negative by ESG; cost of capital and woman board give such a significant and positive influence toward ROA. The unique feature of this research is its focus on a developing country, particulary Indonesia, in contrast to prior research that primarily focused on developed countries like Hong Kong.

Foreign corrupt practices act violations and enforcement

Purpose This study aims to examine the determinants of Foreign Corrupt Practices Act (FCPA) violations and consequences of FCPA enforcements. Design/methodology/approach This paper uses publicly available data from Compustat, I/B/E/S and Thomson Reuters databases, combined with Securities and Exchange Commission (SEC) and Department of Justice (DOJ) cases, to extract insights on FCPA violations and enforcements using econometric approaches. Findings The main determinants of FCPA violations appear to be firm size, multinational structure, country corruption and Sarbanes-Oxley Act control weaknesses. Traditional misreporting risks (F-score and M-score) do not predict FCPA violations. This study discovers significant differences between FCPA violations by motivation, as in, sale generation, rent extraction or cost evasion. Bribes motivated by sale generation or rent extraction are partially driven by the extent of the firm’s global operations, whereas bribes motivated by cost evasion relate to internal influences. This study also finds that enforcement is more salient for criminal violations (DOJ enforcement), compared to civil violations (SEC enforcement). Research limitations/implications This research provides new insights into the determinants of FCPA violations while underscoring the need for effective measures to combat bribery and promote ethical business practices. This research contributes to the ongoing efforts to curtail bribery, offering valuable insights into the characteristics of firms more likely to engage in bribery and contexts in which these activities occur. It provides critical implications for regulatory bodies, highlighting the differential responses of firms to varying types of enforcement, namely, criminal versus civil, as the authors observe greater decreases in internal control weaknesses following DOJ enforcement compared to SEC enforcement. Practical implications For enforcement agencies, the findings underscore the importance of rigorous criminal enforcement against FCPA violations, highlighting the improved control environments prompted by DOJ actions. Managers will find this research relevant, as it demonstrates that a firm’s entry into international markets substantially elevates the risk of its representatives engaging in bribery with foreign officials. In addition, the results are of interest to regulators, revealing that the underlying motivations driving a firm’s activities can significantly alter the factors to consider that might lead to an FCPA violation. Originality/value This paper is the original work of the authors and explores the determinants and consequences of FCPA violations and enforcement actions since 2002. To the best of the authors’ knowledge, it is the first to explore bribe determinants by their motive and documents industry-wide benefits arising from criminal enforcement.

Sustainable prosperity: unravelling the Nordic nexus of ESG, financial performance, and corporate governance

PurposeIn the swiftly evolving business landscape, environmental, social and governance (ESG) considerations have gained exceptional prominence, as stakeholders increasingly emphasize accountability and sustainability. This study aims to meticulously probe the intricate interplay between ESG factors, financial performance and the distinct corporate governance landscape that characterizes the Nordic region's crucible of proactive societal and environmental commitment.Design/methodology/approachThe authors begin with a data set of 899 Nordic firms across Sweden, Norway, Denmark, Finland and Iceland. Using the Thomson Reuters database, they refine this data set by excluding non-regional headquarters and entities without ESG scores or year-long financial data. This resulted in a focused data set of 1,360 firm-years spanning a decade, forming the foundation for investigating the link between ESG factors and financial performance in Nordic firms.FindingsDrawing upon empirical data, the authors systematically dissect the correlation between specified financial ratios and ESG scores on the bedrock of sustainability evaluation. The findings underscore a partially significant, yet robust relationship between ESG endeavors and financial performance metrics. Furthermore, the intricate interplay of corporate governance dimensions’ reveals intriguing correlations with financial indicators among the surveyed Nordic enterprises. However, the findings also reveal an intricate weave that underscores the ESG and financial performance nexus.Research limitations/implicationsThis study addresses stakeholders’ theory and unique positions and contributes to the current discussion on sustainability reporting literature by providing empirical evidence of ESG influences on firm profitability through board characteristics in the specific context of the Nordic region. The sample for this study encompasses firms listed in Nordic countries; thus, the results may not be generalizable to unlisted firms and other countries or regions.Practical implicationsThis study suggests that Nordic firms are advanced in reporting ESG in response to diverse stakeholder demands as part of their regular activities. This study provides valuable insights for diverse stakeholders including researchers and regulatory bodies.Social implicationsThis study provides an understanding of stakeholders about the association of ESG and sustainability practices with firm profitability, which might lead to making the world a better place.Originality/valueWhile illuminating the multifaceted ESG-financial performance nexus, this study reveals its intricate nature. This complexity accentuates the compelling need for further exploration to decode the exact outcomes and myriad factors contributing to the array of correlations observed. Through this comprehensive inquiry, this research advances the understanding and underscores the pivotal role of a focused investigation. This study seeks to harmonize ESG practices and financial performance seamlessly within the Nordic business realm.

Breaking the linear mould: exploring the non-linear relationship between board independence and investment efficiency

PurposeThis study examines the non-linear effect of board independence on the investment efficiency of listed firms worldwide. This study further tests whether the COVID-19 pandemic, industry competition and economic development influence the relationship between board independence and investment efficiency.Design/methodology/approachThe data are retrieved from the Thomson Reuters (Refinitiv) database and include international data from 33 countries, comprising 21,363 firm-year observations. The authors' regression analyses include firm-specific variables as controls that may impact investment efficiency. The authors also perform various robustness tests including, alternative measures of investment efficiency, weighted least squares regression, quantile regression and endogeneity issues.FindingsThe results reveal a non-linear relationship between board independence and investment efficiency. Specifically, the relationship follows a U-shaped pattern, indicating that the negative impact of board independence on investment efficiency becomes positive after it reaches its optimal point, thus supporting optimal board structure theory. Interestingly, the authors find no significant evidence of board independence’s effect on investment efficiency during the pandemic. In contrast, the relationship between board independence and investment efficiency is significant only during the non-pandemic period. Furthermore, the authors discover evidence of a U-shaped relationship in both emerging and developed markets, as well as in industries with high and low competition.Research limitations/implicationsThe authors' study discovers new evidence on the non-linear impact of board independence on investment efficiency, which has not been explored previously in existing research.Practical implicationsThis study has practical implications for investors by emphasising the importance of corporate governance and the appointment of independent directors. Investors should consider the findings of this study when making decisions related to corporate governance, as they can impact a firm's investment efficiency.Originality/valueDespite a considerable body of literature exploring the link between corporate governance and investment effectiveness, there is a dearth of research on the non-linear effects of board independence. Furthermore, the effects of the COVID-19 pandemic, industry competition and economic development remain unexplored.

Board gender diversity and cost of debt financing: Evidence from Latin American and the Caribbean firms

AbstractThis research examines the relationship between board gender diversity and the cost of debt financing in Latin American and Caribbean firms. We implement the Fuzzy Logistic Autoencoder model, using data for 470 firms spanning 2016–2021 from the Eikon Refinitiv Thomson Reuters database. Our findings suggest that the variables independent board, policy board diversity, sustainable development goal 5, executive gender diversity, and governance consistently demonstrated effects on reducing the short‐term and long‐term debt cost over the period analyzed. Consequently, the potential benefits of including women on the board of directors are conducive to improving the firm's reputation, which materializes in reducing the cost of debt. The results offer valuable insights to researchers and investors seeking to understand the role of BGD composition within firms and its financial impact.

Can CSR constrain accruals and real earnings management during the COVID-19 pandemic? An international analysis

PurposeThis paper aims to provide insights into the complicated relationship between earnings management (EM) and corporate social responsibility (CSR) during the financial downturn caused by the COVID-19 pandemic.Design/methodology/approachParametric t-tests and non-parametric Wilcoxon rank-sum tests accompanied by ordinary least squares regression analysis, augmented with Newey–West procedure approaches, are used for a sample that consists of 1,984 firms from 47 countries for the period of 2014–2020. EM was proxied once with discretionary accruals using the modified Jones model (1995) and once with real earnings management (REM) using the Roychowdhury model (2006). This study uses environmental, social, and governance scores from the Thomson Reuters database as a proxy for CSR.FindingsThe results reveal that firms tend to engage more in EM practices during the pandemic and that more socially responsible firms tend to be honest and transparent during the financial reporting process. Interestingly, it was found that more socially responsible firms engaged less in REM practices during the pandemic.Research limitations/implicationsThe findings of this research help lenders, investors, policymakers and managers gain a better understanding of EM practices during a negative shock and shed light on the importance of CSR in being ethical.Originality/valueThe findings extend both the literature on the role of CSR in promoting financial reporting quality and the literature on the impact of COVID-19 on accrual and REM practices.

Do Chief Audit Executives Able to Influence Real Earnings Management Practices? Evidence from Indonesia

Purpose : This study aims to investigate the relationship between financial expertise and tenure of the Chief Audit Executive [CAE] on real earnings management [REM] practices
 Method : This study uses a sample of 797 observations from companies in the manufacturing sector in Indonesia during the period 2012 – 2019. For data analysis, regression of feasible generalized least squares was used. Data related to financial expertise and tenure of CAE were manually collected from the annual report and financial data was obtained from Thomson-Reuters Database. 
 Findings : The results of this study indicate that CAE with better financial expertise is associated with lower REM. Conversely, this study also indicates that CAE tenure has an association with higher REM. This result is robust by using an alternative REM measurement. By breaking down the indicators of CAE’s financial expertise, namely CAE’s certification, experience in financial positions within/inside the company or outside the company, the results show that CAE certification has the largest effect on REM.
 Novelty : This study contributes to the real earnings management and internal audit literature by demonstrating the importance of attributes possessed by CAEs as leaders of the internal audit function in mitigating REM practices.
 Keywords : Chief Audit Executive, Financial Expertise, Tenure, Real Earnings Management

Mediating effect of ESG performance on executive incentive compensation-financial performance relationship: evidence from MENA banking sector

PurposeThis study aims to investigate whether integrating environmental, social and governance (ESG) practices mediates the relationship between executive incentive compensation and the financial performance of Islamic and conventional banks in the Middle East and North Africa (MENA) region.Design/methodology/approachThis study used multiple regression models to analyze the effectiveness of ESG practices as a mediating variable in explaining the relationship between executive incentive compensation and banks’ financial performance between 2015 and 2021. The sample consisted of 57 Islamic and conventional banks operating in the MENA region, and the data were collected from the Thomson Reuters database (Data Stream).FindingsThis research paper showed the positive and significant mediating effect of the ESG practice on Banks’ financial performance. Thus, banks’ financial and stock market profitability is influenced by ESG information disclosure. This finding shows that taking ESG into account improves the relationship between executive incentive compensation and banks’ financial performance.Practical implicationsThe results may interest academic researchers, regulators and policymakers and would support stakeholders and decision-makers who wish to discover how executive incentive compensation affects financial performance in banks.Originality/valueThis study contributes to previous literature by studying the mediating effect of ESG practices on the relationship between executive incentive compensation and banks’ financial performance. Indeed, the originality of this research paper is justified by the scarcity of studies and, to the best of the authors’ knowledge, constitutes one of the first attempts to examine this relationship via a mediating variable, i.e. ESG.

Financial distress and stock price crash risk in Egyptian firms

Economic policy uncertainty intensified as a result of the global financial crisis. To overcome these obstacles, firms handle issues with financial distress and crash risk more proactively. This paper offers new insights into the relationship between financial distress and crash risk on the Egyptian stock market during the period of 2014–2021 and presents how managers strengthen the bad news hoarding mechanism to their advantage. Data were collected via financial statements and reports obtained from the Thomson Reuters database using 824 annual observations of 103 Egyptian firms via the generalized method of moments and ordinary least squares. Results show a strong positive impact of financial distress on crash risk using OLS and GMM. Results support the role of managerial opportunism to cover up bad news that undermines a firm’s economic fundamentals. The findings support an agency theory of how financial distress affects crash risk. The findings support conducting robust tests for alternative financial distress and crash risk measures.

Do media coverage and audit quality of US companies affect their Environmental, Social and Governance transparency?

Purpose The purpose of this paper was to study the direct impact of audit quality on environmental, social and governance (ESG) transparency. It aimed also to investigate the moderating effect of media coverage on the relationship between audit quality and ESG transparency in the USA. Design/methodology/approach The sample consisted of US companies listed in the Standard and Poor’s 500 Stock Index between 2010 and 2019. The Thomson Reuters database was used to collect ESG disclosure scores and governance information. The authors applied multiple panel data regressions. Findings The results showed that audit quality has a direct positive effect on ESG transparency. The findings also showed that the high exposure to public media by firms, the more they commit to high audit quality leading to disclose more transparent ESG information. Research limitations/implications The results illustrated the significance of an external audit on an organization’s ESG report. Second, improving data quality has significant consequences not only for rating agencies but also for investors, businesses and researchers. These steps are required to increase the information content of ESG ratings. Originality/value The findings demonstrated that third-party external verification improves the dependability of nonfinancial reporting, hence bridging the confidence gap between corporations and the market regarding sustainability reporting.

ELABORATING ESG CRITERIA IN INVESTMENTS

Purpose- The aim of this study is to conduct a comprehensive analysis of ESG criteria in investments, and to investigate the potential correlation between ESG pillar scores (i.e., environmental, social, and governance) and the market value of banks. Moreover, the study seeks to identify the areas where ESG performance is most valuable and relevant. ESG investment is a contentious subject, and there are varying perspectives regarding the appropriate weight given to ESG pillars when investing and managing certain banks. The study aims to establish ESG goals and means, define, evaluate, and report ESG performance of firms, and assist investors in comprehending the significance of ESG criteria in making informed investment decisions. Finally, the study provides insights into the implications of ESG investment for businesses and the capital markets as a whole. Methodology- To investigate the correlation of ESG scores on the market value of banks, a quantitative research methodology was employed, which involved a thematic analysis to identify and analyse relevant data. The dataset for this study was obtained from Thomson Reuters database, and it includes data from the past 10 years’ operating in the Turkish and Swiss banks. Findings- The findings of the study suggest that ESG factors have a stronger and more significant impact on the market values of Swiss banks compared to Turkish banks. The higher degree of integration and alignment between ESG concerns and market value is evident through the stronger correlations observed between ESG scores, market capitalization, and the individual pillars within Swiss banks. This implies that Swiss banks have demonstrated a better incorporation of ESG considerations into their market valuations, potentially reflecting their stronger focus on sustainability, responsible business practices, and investor demands for ESG-related performance. Overall, these empirical findings support the hypothesis that there is a positive impact of ESG scores on market value of banks. Conclusion- In sum, the analysis involved examining the correlation between various ESG metrics and market capitalization with a positive correlation between ESG scores and market capitalization in both Turkish and Swiss banks. Specifically, the correlation matrix showed that ESG scores were positively associated with market capitalization, indicating that higher ESG scores were generally accompanied by higher market values. Furthermore, the analysis highlighted the significance of individual ESG pillars. In both Turkish and Swiss banks, the E Pillar Score, S Pillar Score, and G Pillar Score showed positive correlations with market capitalization, suggesting that environmental, social, and governance factors play a role in influencing market value. Keywords: ESG scores, financial performance, sustainability, environmental risk, banking. JEL Codes: G11,G12,G5

Is ESG Data Financially Viable? A Case of Stock Price Synchronicity

According to the information efficiency view, stock price synchronicity reflects the degree of integration of firm-specific information with market-level information. Stock price synchronicity is higher (lower) when there is a higher (lower) level of integration between the firm and the overall market information. As the disclosure of environmental, social and governance data provides more firm-specific, non-financial, value-relevant information to the market, stock prices reflect such information efficiently. It leads to more information efficiency and lower synchronicity of stock prices. Against this backdrop, the present study examines the relationship between ESG and its component scores and stock price synchronicity using a sample of 163 Indian companies reporting their ESG scores through the Thomson Reuters database from 2011 to 2021. The findings of the study confirmed that the ESG score and the scores of its components (except the governance score) have a significant negative impact on stock price synchronicity and a significant positive impact on idiosyncratic volatility. This is consistent with the information efficiency viewpoint, implying that ESG disclosure has value relevance in the capital market and that investors in the Indian market consider ESG information when making investment decisions.

The Impact of Corporate Governance on Intellectual Capital. Empirical Evidence from Romanian Companies

This study aims to analyse the effects of corporate governance on the intellectual capital of companies. The sample is composed of 64 companies listed on the Bucharest Stock Exchange in the time span 2016-2021. The data were collected from companies' annual reports and from Thomson Reuters database. In this way, we investigated the relationship between corporate governance, measured as the compliance with the Bucharest Stock Exchange Code of Corporate Governance, and intellectual capital, measured by two different methods: Economic Value Added (EVA) and Value Added Intellectual Coefficient (VAIC). The results showed that there is a positive and statistically significant relationship between intellectual capital and corporate governance. The main results of our study indicate that there is a positive and statistically significant relationship between corporate governance and intellectual capital in all the cases. Furthermore, all the control variables, namely total assets, employee number, and leverage, show positive and statistically significant results. It has been found that intellectual capital and good corporate governance practices can contribute to the wealth creation of firms. Strategic planning, organisation, transparency, and accountability are the cornerstones of a good corporate governance system. These elements improve the quality of the internal control and risk management processes and increase investors’ and other stakeholders' trust. The importance of intellectual capital has been acknowledged by companies as a vital component of their competitive advantage. The outcomes of the present study can be used by policymakers in order to increase the efficiency of companies and to determine the need to invest in human capital.

Royal family board directors and the level of ESG disclosures in GCC listed firms

PurposeThis study aims to examine the role of royal family members’ board of directors, as a specific aspect of corporate governance, on the firm’s environmental, social and governance (ESG) disclosures. Many firms in the world enjoy special political connections, benefit from tax exemptions and favorable treatments that are largely responsible for their economic endurance and strong performance.Design/methodology/approachThe authors collect data from Thomson Reuters database on Gulf Cooperation Council (GCC)-listed firms for 2010–2018. Royal family board directors’ data is manually collected using a systematic approach to ensure accuracy. Fixed effects’ panel regression model is used to estimate relationships. The authors interact variables to test the moderating effect of board independence and sustainability committee on the influence of royal family board directors.FindingsThis study finds that royal family directors on GCC boards negotiate fewer ESG reporting in firms. While board independence, board gender diversity, sustainability committee and governance committee increase the level of ESG-disclosures in the traditional way of reducing agency costs to stakeholders, this study finds that royal family board members convey beneficial consequences on firms without perceiving the need to disclose their ESG activities. Additionally, these firms do not show a spillover effect from the royal family members on the board’s independence or the existence of a sustainability committee; rather these members use a different channel for protecting and building the business value. These results are robust with respect to controls for company size, leverage, return on assets and growth. Instrumental variables are then introduced in the analysis to perform a sensitivity test.Originality/valueThe study results indicate the need to improve GCC market transparency over supplementary limitations that exist on their corporate governance condition. This may be consequential to regulators, lenders and investors. The results suggest the need to raise awareness of the importance of governance and balancing firms’ financial and social performance in the presence of royal family board directors. Policymakers and governance agencies are responsible for promoting the importance of forming sustainability committees and having a set of performance indicators that measure the effectiveness of their actions.