Using legitimacy and institutional theories, this study investigates whether lending institutions reward firms in 15 EU countries for their environmental, social and governance (ESG) performance and disclosure in terms of lowering their cost of debt capital. Our study distinguishes between ESG performance that is used to indicate an effective commitment to ESG strategies, and ESG disclosure that represents an effort to construct an image of commitment designed to positively influence stakeholders' perceptions. Supporting a version of legitimacy theory, we find that lending institutions value both ESG performance and disclosure and integrate ESG information in their credit decisionsin that firms with stronger ESG performance have a lower cost of debt, and ESG disclosure has an equal impact on the cost of debt as ESG performance. Although these findings suggest that the market (in context) can engender more desirable social outcomes by rewarding ESG practices, it fails to distinguish between ESG performance and disclosure (which may be contrasted as the more substantive and the more symbolic). Moreover, our results also reflect upon the importance of the role that civil society and the state play in addressing and exploring the limitations of free-market regimes. Specifically, we provide evidence that the impact of ESG performance and disclosure on the cost of debt is more dominant in the stakeholder-oriented countries (where the community is more prevalent). Our main findings are robust to a battery of sensitivity tests, including an alternative measure of the cost of debt, model specifications, and different approaches to address endogeneity. We acknowledge limitations in our research method but point nevertheless to its value in supporting a critical perspective and make suggestions for future research.

Purpose The purpose of this paper is to examine the impact of environmental, social, and governance (ESG) practices disclosure and firm value in the Egyptian context. This is done through investigating the influence of being listed and ranked in the Egyptian Corporate Responsibility Index on firm value during the period starting from 2007 to 2016. Design/methodology/approach Using univariate and multivariate analyses, the findings support the economic benefits of ESG disclosures. Findings The authors find that firms listed in the ESG index have higher firm value, and that there is a positive association between firms’ higher rankings in the index and firm value, as measured by Tobin’s q. Research limitations/implications The findings provide feedback to regulators and standard-setters in the developing countries, and more specifically the Egyptian regulators, on the benefits associated with the introduction of the sustainability index (Standard & Poor’s (S&P)/EGX ESG index). This, in turn, clarifies how the government’s efforts to promote ESG provide benefits to publicly traded firms. Practical implications By linking ESG to firm value, the ESG index will enable investors to take a leading role in inducing firms to enhance transparency and disclosure, and hence, improving their reporting standards. This, in turn, will ultimately result in improving sustainability and governance practices in Egypt. Social implications The reported positive market reactions to social and governance practices disclosures can motivate firms to improve their social and governance performance. Originality/value The study contributes to the literature by addressing the combined economic effects of social and governance disclosures on firm value, and by investigating the economic effects of such disclosures on firm value in an emerging market.

The question of whether females tend to act more ethically or risk-averse compared to males is an interesting ethical puzzle. Using a large sample of US firms over the 1992-2014 period, we investigate the effect that the gender of a chief executive officer (CEO) has on earnings management using classification shifting. We find that the pre-Sarbanes-Oxley (SOX) Act period was characterized by high levels of classification shifting by both female and male CEOs, but the magnitude of such practices is, surprisingly, significantly higher in firms with female CEOs than in those with male CEOs. By contrast, our results suggest that following the passage of the punitive SOX Act, classification shifting by female CEOs declined significantly, whilst it remained pervasive in firms with male CEOs. This suggests that the observable differences in financial reporting behavior between male and female CEOs seem to be because female CEOs are more risk-averse, but not necessarily more ethically sensitive than their male counterparts are. The central tenets of our findings remain unchanged after several additional checks, including controlling for alternative earnings management techniques, corporate governance mechanisms, CEO and chief financial officer characteristics and propensity score-matching.