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The Effects of Legal Origin and Corporate Governance on Financial Firms’ Sustainability Performance

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  • David Castillo-Merino

    (Department of Economics and Finance, IQS School of Management, Ramon Llull University, 08017 Barcelona, Spain)

  • Gonzalo Rodríguez-Pérez

    (Department of Economics and Finance, IQS School of Management, Ramon Llull University, 08017 Barcelona, Spain)

Abstract

This paper examines the determinants of sustainability performance in the financial industry at the firm, country and legal origin levels. Through the analysis of the ESG score in a sample of 64 countries with 982 financial firms during the period between 2002 and 2018, we find that legal origin is a significant explanatory variable. In particular, our findings indicate that companies based in civil-law countries show higher values of ESG performance than their counterparts in common-law countries, suggesting the prevalence of the stakeholder theory in explaining the willingness of financial firms to engage in sustainability practices. Moreover, and following the assumptions of the “good governance” view, we also assess the joint the effect of corporate governance and legal origin ESG scores, finding that corporate governance structures emerge as a substitution mechanism of sustainability enhancement for financial firms based in common-law countries.

Suggested Citation

  • David Castillo-Merino & Gonzalo Rodríguez-Pérez, 2021. "The Effects of Legal Origin and Corporate Governance on Financial Firms’ Sustainability Performance," Sustainability, MDPI, vol. 13(15), pages 1-20, July.
    • Handle: RePEc:gam:jsusta:v:13:y:2021:i:15:p:8233-:d:599943
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    2. Arumega Zarefar & Dian Agustia & Noorlailie Soewarno, 2022. "Bridging the Gap between Sustainability Disclosure and Firm Performance in Indonesian Firms: The Moderating Effect of the Family Firm," Sustainability, MDPI, vol. 14(19), pages 1-13, September.
    3. Huang, Xinyue & Ren, Yuning & Ren, Xiangru, 2024. "Legal background executives, corporate governance and corporate ESG performance," Finance Research Letters, Elsevier, vol. 69(PB).
    4. Aws AlHares, 2025. "Does Financial Performance Improve the Quality of Sustainability Reporting? Exploring the Moderating Effect of Corporate Governance," Sustainability, MDPI, vol. 17(13), pages 1-25, July.

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