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The Role of Environmental, Social, and Governance Performance on Attracting Foreign Ownership: Evidence from Saudi Arabia

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  • Hend Alregab

    (Department of Accounting, College of Business Administration, Taif University, P.O. Box 11099, Taif 21944, Saudi Arabia)

Abstract

This research aims to examine whether corporate social responsibility (CSR) and corporate governance (CG) attract foreign investors as key indicators of a firm’s sustainability. By adopting both stakeholder theory and legitimacy theory, it is assumed that a firm could build trustworthiness and legitimacy with its stakeholders by enhancing its environmental, social, and governance (ESG) performance. Using a sample of 110 firms from the Saudi stock market from different industries, this study employs both OLS and System-GMM estimation to test the effect of both ESG performance and CG on foreign investment in Saudi Arabia. The findings indicate that ESG performance positively affects foreign investment. Additionally, it is found that the corporate governance score has a greater effect than social and environmental scores. These empirical findings suggest that companies in Saudi Arabia should adopt global schemes to improve ESG performance to maximize the share of foreign investment, thus boosting the country’s economy and increasing the level of competitive advantages and sustainability.

Suggested Citation

  • Hend Alregab, 2022. "The Role of Environmental, Social, and Governance Performance on Attracting Foreign Ownership: Evidence from Saudi Arabia," Sustainability, MDPI, vol. 14(23), pages 1-15, November.
    • Handle: RePEc:gam:jsusta:v:14:y:2022:i:23:p:15626-:d:982802
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