Article2022

Environmental, social and governance (ESG) disclosure and firm performance: does national culture matter?

Shaista Wasiuzzaman · Ibrahim Aramide Salihu · Farahiyah Kawi

97 citations0/0 files storedMeditari Accountancy Research

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Corporate Social Responsibility Reporting Auditing, Earnings Management, Governance Corporate Governance and Financial Management

Abstract

Purpose The purpose of this study is to analyze the extent to which culture may affect the relationship between environmental, social and governance disclosure (ESGD) and firm performance (FP). Design/methodology/approach Data for testing the hypotheses are collected from 668 firms in the energy sector worldwide over a period of eight years from 2009 to 2016. The analysis is carried out using the instrumental variables regression technique to account for endogeneity. Hofstede’s cultural dimensions of power distance (PD), masculinity (MASC), long-term orientation (LTO), uncertainty avoidance (UNCAVOID) and individualism (INDV) are used as proxies for culture. Findings The results show that ESGD has a significant negative impact on the profitability of energy firms. When cultural dimensions are taken into account, PD and LTO are found to significantly moderate the relationship between ESGD and FP, whereas MASC, UNCAVOID and INDV have no significant effect on the relationship between ESGD and FP. Practical implications The findings of this study highlight the need for regulators to consider the importance of cultural dimensions when seeking to develop a single global standard for ESGD. In addition, regulators need to weigh both the costs and benefits of developing a global standard for it to be effective and acceptable. Social implications This study emphasizes the need to take into account the cultural orientation of the society in which firms operate when devising strategies to fulfill societal expectations and achieve business goals. Originality/value To the best of the authors’ knowledge, this is the first study that addresses the role of culture in affecting the impact of ESGD on FP.

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References

1995Managing Legitimacy: Strategic and Institutional Approaches 2000The New Institutional Economics: Taking Stock, Looking Ahead 2015ESG and financial performance: aggregated evidence from more than 2000 empirical studies 2010Voluntary Nonfinancial Disclosure and the Cost of Equity Capital: The Initiation of Corporate Social Responsibility Reporting 1985Data in Search of a Theory: A Critical Examination of the Relationships Among Social Performance, Social Disclosure, and Economic Performance of U.S. Firms 2005The impact of culture and governance on corporate social reporting 1988Towards a Theory of Cultural Influence on the Development of Accounting Systems Internationally 1984Cultural dimensions in management and planning

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2024Emerging trends of environmental social and governance (ESG) disclosure research 2022Does corporate financial performance promote ESG: Evidence from US firms 2024Board gender diversity and ESG disclosure: The moderating role of audit committee 2025Environmental, social, and governance (ESG) factors and firm value: A systematic literature review of theories and empirical evidence

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