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Sovereign ESG and corporate investment: New insights from the United Kingdom

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  • Zhang, Dongna
  • Zhao, Zuoxiang
  • Lau, Chi Keung Marco

Abstract

This paper examines the nexus between sovereign environmental, social and corporate governance (ESG) issues and corporate investment decisions from a sustainable perspective. By utilising firm-level balance sheets data, country-level governance and policy uncertainty data, we find country governance has a significant positive effect on firm investment. Moreover, this paper shows that climate and migration policy uncertainty has a statistically and economically significant dampening impact on corporate investment, indicating that environmental and social prospect plays a key role in promoting business investment in the United Kingdom. In addition, the empirical evidence on the moderation analysis of corporate leverage suggests that superior environmental, social, and governance performance can help businesses relieve the burden of debt overhang on firm investment. These results provide several important implications on climate change with the objectives of the COP26 conference.

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  • Zhang, Dongna & Zhao, Zuoxiang & Lau, Chi Keung Marco, 2022. "Sovereign ESG and corporate investment: New insights from the United Kingdom," Technological Forecasting and Social Change, Elsevier, vol. 183(C).
    • Handle: RePEc:eee:tefoso:v:183:y:2022:i:c:s004016252200422x
    DOI: 10.1016/j.techfore.2022.121899
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    Cited by:

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    2. Alan Kai Ming Au & Yi-Fan Yang & Huan Wang & Rui-Hong Chen & Leven J. Zheng, 2023. "Mapping the Landscape of ESG Strategies: A Bibliometric Review and Recommendations for Future Research," Sustainability, MDPI, vol. 15(24), pages 1-26, December.
    3. Jorge Antunes & Peter Wanke & Thiago Fonseca & Yong Tan, 2023. "Do ESG Risk Scores Influence Financial Distress? Evidence from a Dynamic NDEA Approach," Sustainability, MDPI, vol. 15(9), pages 1-32, May.
    4. Hu, Yingde & Bai, Wensong & Farrukh, Muhammad & Koo, Chun Kwong, 2023. "How does environmental policy uncertainty influence corporate green investments?," Technological Forecasting and Social Change, Elsevier, vol. 189(C).
    5. Liang, Chao & Wang, Qi, 2023. "The relationship between total factor productivity and environmental quality: A sustainable future with innovation input," Technological Forecasting and Social Change, Elsevier, vol. 191(C).
    6. Asif, Muhammad & Searcy, Cory & Castka, Pavel, 2023. "ESG and Industry 5.0: The role of technologies in enhancing ESG disclosure," Technological Forecasting and Social Change, Elsevier, vol. 195(C).

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    More about this item

    Keywords

    Climate change uncertainty; Sovereign ESG; Country governance; Corporate investments; Leverage effect;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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