Too little or too much? Exploring the inverted U-shaped nexus between voluntary environmental, social and governance and corporate financial performance

Teng, Xiaodong; Ge, Yuejing; Wu, Kun‐Shan; Chang, Bao‐Guang; Kuo, Lopin; Zhang, Xinwen

doi:10.3389/fenvs.2022.969721

Front. Environ. Sci.

2022

DOI: 10.3389/fenvs.2022.969721

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Too little or too much? Exploring the inverted U-shaped nexus between voluntary environmental, social and governance and corporate financial performance

Xiaodong Teng

Yuejing Ge

Kun‐Shan Wu

et al.

Abstract: This study aims to examine the nonlinear relationship between environmental, social and governance (ESG) and corporate financial performance (CFP) using Taiwan Stock Exchange (TSE) listed firms with ESG disclosure between 2005 and 2019. The pooled ordinary least square (OLS) regression estimation results indicate the ESG-CFP nexus is a nonlinear (inverted U-shaped pattern). Furthermore, the individual ESG pillars each have a different relationship with CFP. Both the environmental and social pillars have an inv… Show more

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Cited by 3 publications

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Navigating the impact: A comprehensive analysis of ESG disclosure consequences through systematic review

Li,

Saat,

Khatib

et al. 2024

Bus Strat Dev

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The purpose of this article is to provide a comprehensive and systematic assessment of the literature on the consequences of environmental, social, and governance (ESG) disclosure by means of content analyses. Using a systematic approach, a sample of 165 studies was collected from the Web of Science database and evaluated on the basis of econometric and content analyses, including publication trends, geographical distribution, theories and consequence associated with ESG disclosure (investment and innovation of firms, financing cost and method, operations and financial risk of firms, firm performance and value and others), provides some direction for future investigation. According to the analysis, the literature was more interested in the stakeholder theory when examining the effects of ESG disclosure on areas including company innovation and investment, financing costs and methods, financial risk and operations, business performance, and others. Even though most of the literature has focused on firm performance and value, there is still no clear understanding of the relationship. Also, limited work was found on the investment and innovation of firms, and financing cost and method, while the impact of operations and financial risk of firms has yet to be explored. Meanwhile, this study also identified the impact of ESG disclosure on analysts, audit fees, and earnings management as a new research direction. Finally, this study innovates new findings that institutional pressures may have an impact on the consequences of ESG disclosure, a topic not found in previous studies.

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Navigating the impact: A comprehensive analysis of ESG disclosure consequences through systematic review

Li,

Saat,

Khatib

et al. 2024

Bus Strat Dev

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Is ESG disclosure creating value propositions for the firms? An SLR and meta-analysis of how ESG affects the financials of a firm

Kalyani,

Mondal

2024

COC

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This systematic literature review (SLR) delves into the evolving landscape of environmental, social, and governance (ESG) disclosures and their consequential effects on the financial performance of firms. As sustainability considerations increasingly influence investment decisions, corporations are compelled to integrate ESG factors into their reporting practices. The primary objective of this research is to comprehensively analyze existing literature, elucidating the patterns, trends, and key insights surrounding ESG disclosures and their repercussions on financial outcomes. The study employs a systematic approach to identify, evaluate, and synthesize pertinent research articles, academic papers, and industry reports. It explores the multifaceted dimensions of ESG disclosures, encompassing environmental stewardship, social responsibility, and governance practices. The analysis spans diverse sectors, examining how ESG reporting has become a crucial component of corporate transparency and stakeholder engagement. The review aims to distill overarching themes from the literature, providing a nuanced understanding of the relationship between ESG disclosures and financials. Preliminary findings suggest that ESG disclosures are positively associated with enhanced financial performance, fostering long-term value creation for firms. However, variations exist in the significance of these relationships across industries and regions. Furthermore, the review highlights the emergence of standardized frameworks and reporting guidelines as essential catalysts for advancing ESG disclosure practices. This research contributes to the ongoing dialogue on sustainable finance by consolidating diverse perspectives and methodologies found in the literature. The synthesis of existing knowledge seeks to inform future research directions, guide corporate practices, and assist policymakers in shaping frameworks that promote responsible and transparent business conduct. In total, 650 articles were reviewed to explore the effect the ESG disclosure has on the financial performance of the firms.

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Investigating the double-edged sword effect of environmental, social and governance practices on corporate risk-taking in the high-tech industry

Teng

Kuo

et al. 2023

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Research background: Corporate risk-taking (CRT) is crucial to a business's survival and performance and is a driving force for sustainable development. Environmental, social and governance (ESG) practices are critical to firm profits when considering sustainable economic growth; however, they can also be the cause of financial burdens. It is, therefore, crucial to assess the relationship between a company's ESG performance and its risk-taking. Purpose of the article: Considering the controversial results of empirical studies on the relationship between ESG and CRT, this study aims to theoretically and empirically investigate the curvilinear nexus between ESG practices and CRT within Taiwan's high-tech industry. Methods: Ordinary least square regression and quantile regression analysis was applied to investigate the curvilinear ESG-CRT relationship. The empirical studies were conducted in 38 high-tech companies on the Taiwan Stock Exchange that disclosed ESG information between 2005 and 2020, with a total of 437 firm-year observations. Findings & value added: Quantile regression estimation results reveal the ESG-CRT nexus is U-shaped (convex). Both the environmental and social pillar's relationship with CRT is nonlinear and U-shaped, whereas the governance pillar has no significant relationship with CRT. Overall, a comprehensive view is provided that shows ESG practices can have a double-edged sword effect on CRT. It is suggested that high-tech companies in Taiwan should avoid ESG practices becoming a tool for managements' self-interest. More information of ESG practices should be disclosed to stakeholders to ensure they are given full credit for the positive impact they have on capital allocation. Regulators guide firms to surpass the threshold of the U-shaped effect and take into consideration the whole benefits of stakeholders when they allocate existing resources toward environmental and social endeavors.

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Too little or too much? Exploring the inverted U-shaped nexus between voluntary environmental, social and governance and corporate financial performance

Cited by 3 publications

References 28 publications

Navigating the impact: A comprehensive analysis of ESG disclosure consequences through systematic review

Navigating the impact: A comprehensive analysis of ESG disclosure consequences through systematic review

Is ESG disclosure creating value propositions for the firms? An SLR and meta-analysis of how ESG affects the financials of a firm

Investigating the double-edged sword effect of environmental, social and governance practices on corporate risk-taking in the high-tech industry

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