IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v15y2023i16p12664-d1221896.html
   My bibliography  Save this article

Corporate Sustainability and Financial Performance: The Moderating Effect of CEO Characteristics

Author

Listed:
  • Abdulateif A. Almulhim

    (Finance Department, School of Business, King Faisal University, Al Ahsa 31982, Saudi Arabia)

  • Abdullah A. Aljughaiman

    (Finance Department, School of Business, King Faisal University, Al Ahsa 31982, Saudi Arabia)

Abstract

This study aimed to investigate the effect of corporate sustainability on financial performance as well as examine whether CEO characteristics influence the association between corporate sustainability and the financial performance of listed firms in the Saudi Stock Exchange. In this vein, this study is the first to utilize multiple CEO characteristics as a moderating role influencing the association between corporate sustainability and financial performance. In addition, the study focuses on the developing country of Saudi Arabia, which is one of the top oil producers in the world and is targeting to invest billions of dollars in renewable and sustainable energy projects according to Saudi Vision 2030. We primarily focused on ESG activities (environmental, social, and governance) and their impact on the return on assets and return on equity (employed as a proxy of financial performance). This study used the ordinary least squares (OLS) model to examine these associations as well as the system GMM to test for endogeneity problems. Using a sample of 1143 observations to represent the non-financial firms listed on the Tadawul All Share Index (TASI) for 9 years from 2014 to 2022, we found a negative and significant relationship between the activities of corporate sustainability and financial performance. Furthermore, we demonstrated that CEO characteristics (CEO busyness, CEO ownership, CEO education, CEO gender, and CEO tenure) exerted influence on the association between corporate sustainability and financial performance; that is, CEO busyness, CEO ownership, and CEO gender mitigated the negative influence of corporate sustainability on financial performance, whereas CEO education and CEO tenure made it worse. The results of this study have implications for regulators, firms, and stakeholders.

Suggested Citation

  • Abdulateif A. Almulhim & Abdullah A. Aljughaiman, 2023. "Corporate Sustainability and Financial Performance: The Moderating Effect of CEO Characteristics," Sustainability, MDPI, vol. 15(16), pages 1-21, August.
    • Handle: RePEc:gam:jsusta:v:15:y:2023:i:16:p:12664-:d:1221896
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/15/16/12664/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2071-1050/15/16/12664/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Stephen P. Ferris & Murali Jagannathan & A. C. Pritchard, 2003. "Too Busy to Mind the Business? Monitoring by Directors with Multiple Board Appointments," Journal of Finance, American Finance Association, vol. 58(3), pages 1087-1111, June.
    2. Falato, Antonio & Kadyrzhanova, Dalida & Lel, Ugur, 2014. "Distracted directors: Does board busyness hurt shareholder value?," Journal of Financial Economics, Elsevier, vol. 113(3), pages 404-426.
    3. Michael C. Jensen, 2010. "Value Maximization, Stakeholder Theory, and the Corporate Objective Function," Journal of Applied Corporate Finance, Morgan Stanley, vol. 22(1), pages 32-42, January.
    4. Ulrike Malmendier & Geoffrey Tate, 2005. "CEO Overconfidence and Corporate Investment," Journal of Finance, American Finance Association, vol. 60(6), pages 2661-2700, December.
    5. Gary F. Peters & Andrea M. Romi & Juan Manuel Sanchez, 2019. "The Influence of Corporate Sustainability Officers on Performance," Journal of Business Ethics, Springer, vol. 159(4), pages 1065-1087, November.
    6. Gerwin Laan & Hans Ees & Arjen Witteloostuijn, 2008. "Corporate Social and Financial Performance: An Extended Stakeholder Theory, and Empirical Test with Accounting Measures," Journal of Business Ethics, Springer, vol. 79(3), pages 299-310, May.
    7. John Gartchie Gatsi & Comfort Ama Akorfa Anipa & Samuel Gameli Gadzo & Joseph Ameyibor, 2016. "Corporate Social Responsibility, Risk Factor and Financial Performance of Listed Firms in Ghana," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 6(2), pages 1-2.
    8. Fizzah Malik & Fangjun Wang & Muhammad Akram Naseem & Amir Ikram & Shahid Ali, 2020. "Determinants of Corporate Social Responsibility Related to CEO Attributes: An Empirical Study," SAGE Open, , vol. 10(1), pages 21582440198, January.
    9. El Ghoul, Sadok & Guedhami, Omrane & Kwok, Chuck C.Y. & Mishra, Dev R., 2011. "Does corporate social responsibility affect the cost of capital?," Journal of Banking & Finance, Elsevier, vol. 35(9), pages 2388-2406, September.
    10. Jiraporn, Pornsit & Davidson III, Wallace N. & DaDalt, Peter & Ning, Yixi, 2009. "Too busy to show up? An analysis of directors' absences," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(3), pages 1159-1171, August.
    11. Cashman, George D. & Gillan, Stuart L. & Jun, Chulhee, 2012. "Going overboard? On busy directors and firm value," Journal of Banking & Finance, Elsevier, vol. 36(12), pages 3248-3259.
    12. Brown, Rayna & Sarma, Neal, 2007. "CEO overconfidence, CEO dominance and corporate acquisitions," Journal of Economics and Business, Elsevier, vol. 59(5), pages 358-379.
    13. Liu, Chelsea, 2018. "Are women greener? Corporate gender diversity and environmental violations," Journal of Corporate Finance, Elsevier, vol. 52(C), pages 118-142.
    14. Chen, Wanyu (Tina) & Zhou, Gaoguang (Stephen) & Zhu, Xindong (Kevin), 2019. "CEO tenure and corporate social responsibility performance," Journal of Business Research, Elsevier, vol. 95(C), pages 292-302.
    15. Alex Nicholls, 2010. "The Legitimacy of Social Entrepreneurship: Reflexive Isomorphism in a Pre–Paradigmatic Field," Entrepreneurship Theory and Practice, , vol. 34(4), pages 611-633, July.
    16. Merriam Haffar & Cory Searcy, 2017. "Classification of Trade-offs Encountered in the Practice of Corporate Sustainability," Journal of Business Ethics, Springer, vol. 140(3), pages 495-522, February.
    17. Muhammad Safdar Sial & Chunmei Zheng & Jacob Cherian & M.A. Gulzar & Phung Anh Thu & Tehmina Khan & Nguyen Vinh Khuong, 2018. "Does Corporate Social Responsibility Mediate the Relation between Boardroom Gender Diversity and Firm Performance of Chinese Listed Companies?," Sustainability, MDPI, vol. 10(10), pages 1-18, October.
    18. Stephen P. Ferris & Murali Jagannathan & A. C. Pritchard, 2003. "Too Busy to Mind the Business? Monitoring by Directors with Multiple Board Appointments," Journal of Finance, American Finance Association, vol. 58(3), pages 1087-1112, June.
    19. Eliezer M. Fich & Anil Shivdasani, 2006. "Are Busy Boards Effective Monitors?," Journal of Finance, American Finance Association, vol. 61(2), pages 689-724, April.
    20. Wafa Ghardallou, 2022. "Corporate Sustainability and Firm Performance: The Moderating Role of CEO Education and Tenure," Sustainability, MDPI, vol. 14(6), pages 1-16, March.
    21. Melinda Cahyaning Ratri & Iman Harymawan & Khairul Anuar Kamarudin, 2021. "Busyness, Tenure, Meeting Frequency of the CEOs, and Corporate Social Responsibility Disclosure," Sustainability, MDPI, vol. 13(10), pages 1-22, May.
    22. Sonia Boukattaya & Abdelwahed Omri, 2021. "Impact of Board Gender Diversity on Corporate Social Responsibility and Irresponsibility: Empirical Evidence from France," Sustainability, MDPI, vol. 13(9), pages 1-14, April.
    23. repec:eme:jaar00:09675421211254858 is not listed on IDEAS
    24. Ibrahim Sameer, 2021. "Impact of corporate social responsibility on organization’s financial performance: evidence from Maldives public limited companies," Future Business Journal, Springer, vol. 7(1), pages 1-21, December.
    25. Lukas Timbate & Cheong Kyu Park, 2018. "CSR Performance, Financial Reporting, and Investors’ Perception on Financial Reporting," Sustainability, MDPI, vol. 10(2), pages 1-16, February.
    26. Masulis, Ronald W. & Mobbs, Shawn, 2014. "Independent director incentives: Where do talented directors spend their limited time and energy?," Journal of Financial Economics, Elsevier, vol. 111(2), pages 406-429.
    27. Wan Nordin Wan-Hussin & Ameen Qasem & Norhani Aripin & Mohd Shazwan Mohd Ariffin, 2021. "Corporate Responsibility Disclosure, Information Environment and Analysts’ Recommendations: Evidence from Malaysia," Sustainability, MDPI, vol. 13(6), pages 1-27, March.
    28. You, Linqing & Chen, Zhuoqiong, 2022. "A theory of firm opacity and corporate social responsibility," Journal of Banking & Finance, Elsevier, vol. 145(C).
    29. Stergios Leventis & Panagiotis Dimitropoulos, 2012. "The role of corporate governance in earnings management: experience from US banks," Journal of Applied Accounting Research, Emerald Group Publishing Limited, vol. 13(2), pages 161-177, September.
    30. Collin, Sven-Olof Yrjö & Tagesson, Torbjörn & Andersson, Anette & Cato, Joosefin & Hansson, Karin, 2009. "Explaining the choice of accounting standards in municipal corporations: Positive accounting theory and institutional theory as competitive or concurrent theories," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 20(2), pages 141-174.
    31. Stergios Leventis & Panagiotis Dimitropoulos, 2012. "The role of corporate governance in earnings management: experience from US banks," Journal of Applied Accounting Research, Emerald Group Publishing Limited, vol. 13(2), pages 161-177, September.
    32. Field, Laura & Lowry, Michelle & Mkrtchyan, Anahit, 2013. "Are busy boards detrimental?," Journal of Financial Economics, Elsevier, vol. 109(1), pages 63-82.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Abdullah A. Aljughaiman & Ngan D. Cao & Mohammed S. Albarrak & Abdulateif A. Almulhim, 2024. "Influence of Cultural and Environmental Values of CEOs on Greenhouse Gas Emission Intensity," Sustainability, MDPI, vol. 16(2), pages 1-24, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Wafa Ghardallou, 2022. "Corporate Sustainability and Firm Performance: The Moderating Role of CEO Education and Tenure," Sustainability, MDPI, vol. 14(6), pages 1-16, March.
    2. Tutun Mukherjee & Som Sankar Sen, 2022. "Impact of CEO attributes on corporate reputation, financial performance, and corporate sustainable growth: evidence from India," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-50, December.
    3. Kim, Keunyoung, 2022. "When are busy boards beneficial?," The Quarterly Review of Economics and Finance, Elsevier, vol. 86(C), pages 437-454.
    4. Liu, Julia Junxia & Liu, Yu, 2023. "Multiple directorships and firm performance: Evidence from independent director effort allocation in Hong Kong," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
    5. Qi Wang & Maoxia Sun & Kongwen Wang, 2023. "Do Reputation Incentives Matter? Busy Directors and Corporate Social Responsibility in China," Sustainability, MDPI, vol. 15(6), pages 1-17, March.
    6. Ferris, Stephen P. & Jayaraman, Narayanan & Liao, Min-Yu (Stella), 2020. "Better directors or distracted directors? An international analysis of busy boards," Global Finance Journal, Elsevier, vol. 44(C).
    7. Marwa Elnahass & Kamil Omoteso & Aly Salama & Vu Quang Trinh, 2020. "Differential market valuations of board busyness across alternative banking models," Review of Quantitative Finance and Accounting, Springer, vol. 55(1), pages 201-238, July.
    8. Pamela Brandes & Ravi Dharwadkar & Jonathan F. Ross & Linna Shi, 2022. "Time is of the Essence!: Retired Independent Directors’ Contributions to Board Effectiveness," Journal of Business Ethics, Springer, vol. 179(3), pages 767-793, September.
    9. Alqahtani, Jubran & Duong, Lien & Taylor, Grantley & Eulaiwi, Baban, 2022. "Outside directors, firm life cycle, corporate financial decisions and firm performance," Emerging Markets Review, Elsevier, vol. 50(C).
    10. Kutubi, Shawgat S. & Ahmed, Kamran & Khan, Hayat, 2018. "Bank performance and risk-taking — Does directors' busyness matter?," Pacific-Basin Finance Journal, Elsevier, vol. 50(C), pages 184-199.
    11. Chen, Li-Yu & Lai, Jung-Ho & Chen, Carl R., 2015. "Multiple directorships and the performance of mergers & acquisitions," The North American Journal of Economics and Finance, Elsevier, vol. 33(C), pages 178-198.
    12. Badar Alshabibi, 2021. "The Role of Institutional Investors in Improving Board of Director Attributes around the World," JRFM, MDPI, vol. 14(4), pages 1-33, April.
    13. Bennouri, Moez & Chtioui, Tawhid & Nagati, Haithem & Nekhili, Mehdi, 2018. "Female board directorship and firm performance: What really matters?," Journal of Banking & Finance, Elsevier, vol. 88(C), pages 267-291.
    14. James, Hui Liang & Wang, Hongxia & Xie, Yamin, 2018. "Busy directors and firm performance: Does firm location matter?," The North American Journal of Economics and Finance, Elsevier, vol. 45(C), pages 1-37.
    15. Kutubi, Shawgat S. & Ahmed, Kamran & Khan, Hayat & Garg, Mukesh, 2021. "Multiple directorships and the extent of loan loss provisions: Evidence from banks in South Asia," Journal of Contemporary Accounting and Economics, Elsevier, vol. 17(3).
    16. Melinda Cahyaning Ratri & Iman Harymawan & Khairul Anuar Kamarudin, 2021. "Busyness, Tenure, Meeting Frequency of the CEOs, and Corporate Social Responsibility Disclosure," Sustainability, MDPI, vol. 13(10), pages 1-22, May.
    17. Mosammet Asma Jahan & Martien Lubberink & Karen Van Peursem, 2021. "Does prestigious board membership matter? Evidence from New Zealand," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(1), pages 977-1015, March.
    18. Bradley Benson & Travis Davidson & Hui James & Hongxia Wang, 2022. "Board busyness and corporate payout: are all busy directors the same?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(3), pages 3711-3759, September.
    19. Henrique Castro Martins & Cristiano Machado Costa, 2020. "Does control concentration affect board busyness? International evidence," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 24(3), pages 821-850, September.
    20. Stein, Luke C.D. & Zhao, Hong, 2019. "Independent executive directors: How distraction affects their advisory and monitoring roles," Journal of Corporate Finance, Elsevier, vol. 56(C), pages 199-223.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:15:y:2023:i:16:p:12664-:d:1221896. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.