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The Moderating Role of Country Governance in the Link between ESG and Financial Performance: A Study of Listed Companies in 58 Countries

Author

Listed:
  • Zhonghuan Luo

    (School of Economic and Management, Tongji University, Shanghai 200092, China)

  • Yujia Li

    (School of Economic and Management, Tongji University, Shanghai 200092, China)

  • Luu Thi Nguyen

    (Faculty of Business, FPT University, Hanoi 13113, Vietnam)

  • Irfan Jo

    (School of Economic and Management, Tongji University, Shanghai 200092, China)

  • Jing Zhao

    (Changjiang Waterway Bureau, Shanghai 200010, China)

Abstract

Corporate environmental, social, and governance (ESG) performance is expected to positively affect financial performance because it helps firms gain sociopolitical legitimacy from receiving positive stakeholder awareness and gaining key resources. However, the research on the relationship between corporate ESG performance and financial performance has yielded mixed results. This paper explores the impact of the country governance environment on the ESG–financial performance link. We propose that the positive ESG–financial performance relationship is stronger for firms in countries with better governance. Empirical analyses using a large panel dataset covering 11 years and 58 countries support our arguments. We found that countries with more effective governance in political stability, regulatory quality, and control of corruption strengthen the positive ESG–financial performance relationship. The implications of our findings are significant for firms that face different governance environments and develop sustainable business strategies.

Suggested Citation

  • Zhonghuan Luo & Yujia Li & Luu Thi Nguyen & Irfan Jo & Jing Zhao, 2024. "The Moderating Role of Country Governance in the Link between ESG and Financial Performance: A Study of Listed Companies in 58 Countries," Sustainability, MDPI, vol. 16(13), pages 1-18, June.
    • Handle: RePEc:gam:jsusta:v:16:y:2024:i:13:p:5410-:d:1422114
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    References listed on IDEAS

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    2. Ma, Yonghong & Zhu, Enjia, 2025. "Supply chain finance and enterprise dual innovation: The perspective of breakthrough and incremental innovation," International Review of Financial Analysis, Elsevier, vol. 105(C).
    3. Rezart Demiraj & Enida Demiraj & Suzan Dsouza, 2025. "The Moderating Role of Worldwide Governance Indicators on ESG–Firm Performance Relationship: Evidence from Europe," JRFM, MDPI, vol. 18(4), pages 1-19, April.

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