Environmental, social and governance ratings and firm performance: The moderating role of internal control quality

Abstract

Despite the burgeoning interest in environmental, social and governance (ESG) ratings, current results regarding ESG rating-performance relationship are inconclusive. Since what affects this disagreement is ambiguous, we examine how internal control weaknesses (ICW) may affect the relationship between ESG rating and a firm's performance.In fact, employing a sample of French listed firms during the period between 2012 and 2018, we predicted and found that both ICW and ESG ratings have a positive and significant influence on a firm's performance. In addition, the results indicate that ICW negatively and significantly moderates the relationship between ESG ratings and corporate performance. Moreover, the robustness of the results is checked through the generalized method of moments regression. We also offer theoretical and practical implications to drive policymakers and businesses to assure sustainable development.We expect that our study can help managers to strengthen their internal resources, such as the internal control (IC) and ESG ratings to improve a firm's performance.

The effect of internal control and corporate social responsibility on conditional accounting conservatism: Evidence from France

“…IC is adummy variable coded 1 if the company discloses information on IC weaknesses, and 0 otherwise (Boulhaga et al., 2022; Goh & Li, 2011); data on IC weaknesses were collected manually from financial reports and reference documents published on the French listed companies’ websites (Ji et al., 2016). CSRis measured by the ESG score retrieved from Thomson Reuters ASSET4 ESG (Boulhaga et al., 2022; Lahouel et al., 2019; Yang & Baasandorj, 2017). Company size corresponds to the logarithm of total assets (Anagnostopoulou et al.…”

“…Measurement of independent and control variables IC is adummy variable coded 1 if the company discloses information on IC weaknesses, and 0 otherwise (Boulhaga et al, 2022;Goh & Li, 2011); data on IC weaknesses were collected manually from financial reports and reference documents published on the French listed companies' websites (Ji et al, 2016). CSRis measured by the ESG score retrieved from Thomson Reuters ASSET4 ESG (Boulhaga et al, 2022;Lahouel et al, 2019;Yang & Baasandorj, 2017).Company size corresponds to the logarithm of total assets (Anagnostopoulou et al 2020;Goh & Li, 2011;Guo et al, 2020;Mitra et al, 2013). LEV is measured by the ratio of long-term debt deflated by total assets (Hong, 2020;Mitra et al, 2013;Shen et al, 2020).…”

Economic policy uncertainty, renewable energy and environmental degradation: Evidence from Egypt

“…Renewable energy constitutes a means to preserve the environment, mitigate global warming, and provide energy sources to achieve sustainable development. Hence, in recent decades, there has been a growing interest from researchers and policymakers in the impact of renewable energy consumption on environmental degradation, particularly in the context of global warming and the pursuit of sustainable development (Abdou et al 2023 ; Amin et al 2022 ; Boulhaga et al 2023 ; Elamer et al 2022 ; Eldaly et al 2022 ; Ibrahim et al 2022 ; Murphy et al 2023 ; Roberts et al 2022 ; Ullah et al 2022 ). While various studies have investigated this link, there is still a lack of consensus on the precise relationship between renewable energy use and environmental quality (e.g., Dong et al 2020 ).…”

Corporate social responsibility performance and the cost of capital in BRICS countries. The problem of selectivity using environmental, social and governance scores

“…These two opposite points of view make the sign of the correlation between CSR and firm value uncertain, especially in emerging economies where legal constraints concerning environmental issues and sustainable development are still not corroborated (Boulhaga et al, 2022). In particular, with their fast‐growing economies, BRICS Countries are searching for a compromise between the exigence of favouring the expansion of financial markets and the emerging issue of sustainable development.…”