Optimizing performance through sustainability: the mediating influence of firm liquidity on ESG efficacy in African enterprises

Dsouza, Suzan; Momin, Mujtaba; Habibniya, Houshang; Tripathy, Naliniprava Article Optimizing performance through sustainability: the mediating influence of firm liquidity on ESG efficacy in African enterprises Cogent Business & Management Provided in Cooperation with: Taylor & Francis Group Suggested Citation: Dsouza, Suzan; Momin, Mujtaba; Habibniya, Houshang; Tripathy, Naliniprava (2024) : Optimizing performance through sustainability: the mediating influence of firm liquidity on ESG efficacy in African enterprises, Cogent Business & Management, ISSN 2331-1975, Taylor & Francis, Abingdon, Vol. 11, Iss. 1, pp. 1-21, https://doi.org/10.1080/23311975.2024.2423273 This Version is available at: https://hdl.handle.net/10419/326671 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ Cogent Business & Management ISSN: 2331-1975 (Online) Journal homepage: www.tandfonline.com/journals/oabm20 Optimizing performance through sustainability: the mediating influence of firm liquidity on ESG efficacy in African enterprises Suzan Dsouza, Mujtaba Momin, Houshang Habibniya & Naliniprava Tripathy To cite this article: Suzan Dsouza, Mujtaba Momin, Houshang Habibniya & Naliniprava Tripathy (2024) Optimizing performance through sustainability: the mediating influence of firm liquidity on ESG efficacy in African enterprises, Cogent Business & Management, 11:1, 2423273, DOI: 10.1080/23311975.2024.2423273 To link to this article: https://doi.org/10.1080/23311975.2024.2423273 © 2024 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group Published online: 05 Nov 2024. Submit your article to this journal Article views: 1442 View related articles View Crossmark data Citing articles: 7 View citing articles Full Terms & Conditions of access and use can be found at https://www.tandfonline.com/action/journalInformation?journalCode=oabm20 Cogent Business & ManageMent 2024, VoL. 11, no. 1, 2423273 Optimizing performance through sustainability: the mediating influence of firm liquidity on ESG efficacy in African enterprises Suzan Dsouzaa , Mujtaba Momina, Houshang Habibniyaa and Naliniprava Tripathyb aCollege of Business administration, american university of the Middle east, egaila, Kuwait; bindian institute of Management, shillong, Meghalaya, india ABSTRACT This study employs a linear regression model to investigate the relationship between ESG performance, liquidity, and firm performance of African-listed firms covering a period from 2013 to 2022. The results indicate that liquidity is a significant mediating factor influencing the association between ESG performance on firm performance. Furthermore, the outcome suggests that augmenting the ESG performance of listed companies enhances firm performance. Robustness tests also corroborate the postulation that firms with higher liquidity improve ESG performance and enhance overall firm performance. This study offers important insights to corporate governors, listed firms, and investors. 1. Introduction The recent past has witnessed equanimity between the environment and human sustainability, and organizations are no exception. This tectonic shift from revenue-orientation philosophy to ‘mutual sustainability’ has been an outcome of the realization that nothing can exist in vacuum. This intertwining between firms, finance society, and the environment has led to the need to standardize measures for environment sustainability, social consciousness, and firm performance. Furthermore, there has been a surge in stakeholder interests (Kramer & Pfizer, 2022) as well as academics (Al Amosh et al., 2023; Gao et al., 2022; Gavin et al., 2022; Gupta etal., 2022; Kroft & Bams, 2022; Pulino et al., 2022; Zhou et al., 2022); wherein parallel spheres of investigation and inference are being brought to limelight. These conclusions have been an outcome of discussion in scholarly forums, wherein ESG and its relationship with firm sustainability have been at the core (Ahmad et al., 2021; Aragón-Correa et al., 2016; Bansal & Song, 2017; Christophe & Lee, 2021; Jeong & Harrison, 2017; Jones et al., 2018). Though this primal association has been iteratively investigated, what remains enisle is the integrating association of firm liquidity with the antecedence of ESG disclosures and the outcome of firm performance. Firm liquidity has been studied at length with CSR initiatives (Uyar et al., 2023), and so have been with firm performance (Kassamany et al., 2023); but there are negligible studies that articulate the variable with ESG or firm performance. Practitioners may go to the extent of perceiving CSR as a proxy for ESG; though theoretically, they principally differ. Thus, articulating firm liquidity with ESG and firm performance is a unique triangulation that has to be empirically substantiated. The influence of ESG on firm performance can be deviated with the liquidity behaviour of firms, hence liquidity plays a pivotal role in the success of firm performance. Liquidity plays a crucial role in determining the success of ESG initiatives and, ultimately, firm © 2024 the author(s). Published by informa uK Limited, trading as taylor & Francis group CONTACT suzan Dsouza [email protected] College of Business administration, american university of the Middle east, egaila 54200, Kuwait https://doi.org/10.1080/23311975.2024.2423273 this is an open access article distributed under the terms of the Creative Commons attribution License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. the terms on which this article has been published allow the posting of the accepted Manuscript in a repository by the author(s) or with their consent. ARTICLE HISTORY Received 15 April 2024 Revised 2 September 2024 Accepted 25 October 2024 KEYWORDS ESG; Africa; firm performance; liquidity; environmental disclosures; social; governance JEL M14; N17; N87; M41 SUBJECTS Business, Management and Accounting, Finance; African Studies ACCOUNTING, CORPORATE GOVERNANCE & BUSINESS ETHICS | RESEARCH ARTICLE 2 S. DSOUZA ETAL. performance. Firms with high liquidity are better positioned to invest in ESG activities, manage risks, and take advantage of growth opportunities. This, in turn, can lead to improved firm performance, especially in the long run. Conversely, firms with liquidity constraints may struggle to invest in ESG, potentially limiting their performance and growth potential. Therefore, when evaluating the influence of ESG on firm performance, it is essential to consider the liquidity behavior of firms, as it can significantly impact their ability to implement and sustain ESG initiatives effectively. ESG has recently become mainstream. Thus, the united efforts of scholarly and practitioner communities have paved the way for the swift evolution of this sphere. Africa presents significant opportunities for private investors. The region boasts a youthful and expanding population alongside plentiful natural resources. Urban centres are experiencing substantial development, with many nations implementing extensive industrialization and digitalization strategies. The primary drivers behind Foreign Direct Investment (FDI) inflows into Africa in recent years seem to be the availability of natural resources in host countries, coupled with the size of the domestic market playing a secondary role. The potential of FDI to contribute to economic advancement and global integration of African nations is widely acknowledged. However, barring a few (Chetty et al., 2015; Demetriades & Auret, 2014; Garcia et al., 2017; Okolie & Igaga, 2021), there have been fewer consolidated efforts towards empirical investigations on the African continent, which could be attributed to the less evolved financial systems, sparse fortune 500 firms in the geography, asynchronous terminology, absence of longer time horizons, or reasons that need contemplation and cognizance. ESG and firm performance are positively related across various countries (Atan etal., 2018; Busch & Friede, 2018; del Mar Miras‐Rodríguez et al., 2015; Gallardo-Vázquez et al., 2019; Han et al., 2016; Khoury et al., 2021; Pulino et al., 2022). Primarily considering the increasing trend of foreign direct investment (FDI) in the African continent and the ESG enforcement by the United Nations, there is always a question of whether ESG performance is relevant for investors. Second, does ESG performance affect a firm’s performance? Can ESG performance influence factors for variations? However, limited research has been conducted on the correlations between ESG performance, liquidity, and financial performance. Our study aims to fill this gap with a three-pronged approach: 1) We triangulate the relationship between the ESG performance, firm liquidity, and financial performance of listed companies using a linear regression model with a sample of 1109 firm-year observations (for a total of 165 selected firms), to signify the role that non-tangible resources assert for tangible financial returns. Moreover, it has to be noted that firm liquidity is a novel node that has been rarely studied in theoretical circles and hence signifies importance for this discipline. 2) Second, we bring to literature the mediating association of financial liquidity of a firm to accentuate (or deflate) this primal association. This investigation is seminal, to introduce an intermediary construct that has been rarely done in the past for listed African corporates; wherein we have constructed a linear regression, alongside the mediating effect models. 3) Finally, the manuscript brings to focal this association under the robustness test by considering a wider range of variables, representing firm performance. This three-level analysis ascertaining the direct, mediation and moderated-mediation effect offers some of the robust results that make the research substantial to advance theory in this discipline. With the swiftly maneuvering business landscape and the growing acknowledgement of ESG, it is significant to study this association owing to its relevance and integration with global and regional integration, and with economic and human progression. With rising acknowledgement of stakeholder and sustainability aspects of business, an investigation of this nature is integral to reveal how inefficient ESG investments that arise from agency and stakeholder issues can inhibit firm performance. Studies of this nature are pivotal to surface a panorama of factors that moderate the adoption of ESG in emerging economies and to identify a host of reasons that implicate the long-term and short-term existence of these organizations, and their sustainability. Moreover, there has been a string of such investigations in peculiar zones like the Nordic region (Saha & Khan, 2024), India (Bodhanwala & Bodhanwala, 2023; Maji & Lohia, 2023), China (Lin et al., 2024), United States (Atayah et al., 2024) and in seven emerging economies (Al-Hiyari etal., 2023); which hints on the need for concentration studies differentiated by time, geography and theoretical foundations. In particular, it is significant to study Africa, owing to its rising journey in the industrial and financial landscape. With not many recent studies on Africa (Okolie & Igaga, 2021), an investigation of this nature maps the vivid contours of this emerging economy and the constituents that shape the understanding of ESG and its financial implications in such economic zones. A study of this nature has the potential to advance theory and also magnify specifics of such economies that can influence the COGENT BUSINESS & MANAGEMENT 3 primal association between ESG and firm performance. Simply, this study aspires to acknowledge and bridge the paucity of literature on ESG and firm performance, enroute to financial liquidity with statistical evidence; especially in zones that are emerging as economies. Thus, this study aims to diligently probe into the interplay that ESG offers to firm performance; and the distinct regional, business landscape that Africa characterizes; and thus, contribute to the advancement of theory, in the sphere of sustainability and accountability. The findings of this study demonstrate that enhancing the ESG performance of listed firms is beneficial for improving firm performance. Furthermore, liquidity plays a significant role as a mediating factor in the impact of ESG performance on firm performance. Robustness tests confirm that if firm performance measured as ROA is replaced by ROE, Tobin’s Q or NPM, liquidity plays a significant role as a mediating factor in the impact of ESG performance on firm performance. This study provides several important insights to policymakers, regulators and enterprises. The subsequent sections of this manuscript are structured as follows. The second segment comprises a review of existing literature and research propositions, merging domestic and international literature on ESG performance and liquidity, ESG performance and firm performance, as well as liquidity and firm performance, culminating in the development of research propositions. The third division delineates the methodology, covering data overview, variable choice, and the construction of econometric models. The fourth part demonstrates an examination of the findings. Lastly, the fifth section wraps up the document and offers insights. 2. Literature review and hypotheses development Scholarly works have consistently investigated ESG and its influence on firm performance (Busch & Schnippering, 2022; Gallardo-Vázquez et al., 2019; Hang etal., 2019; Margolis et al., 2009; Orlitzky et al., 2003; Vishwanathan etal., 2020; Q. Wang etal., 2016); which indicates the significance of this investigation in theory and practice. Furthermore, the whole nature of the study is a complex intertwining of objectivity, finances, and subjectivity, with ethics, culture, and human consciousness moderating the interplay of variables. Therefore, it is important to concentrate on the objective variables while controlling for their subjective aspect, which can be achieved by discussing each of these variables distinctly. Further, it has been noticed that the conclusions of these studies have been conflicting and contrary in vivid settings and scenarios (Ahmed etal., 1998; Guluma, 2021; Gupta etal., 2022; Puni & Anlesinya, 2020); which creates a need for amalgamated and distinct studies. Thus, we discuss the variables as environmental, social, and governance mechanisms, and then discuss them together to hypothesize a research construct. Thus, this study proposes to unearth these hidden intrigues while comprehensively investigating the African continent. Thus, from a broad perspective on the association between ethical conduct and financial performance, there is a need for a bifurcated discussion of studies slotted distinctly for the environment, society, and governance. For the sake of the current investigation, we draw cues from the Instrumental stakeholder theory (IST), Integrative Social Contracts Theory (ISCT) and Stakeholder Theory, owing to their relevance to the research questions. IST states that the ethical conduct of organizations emerges with high levels of firm trust and cooperation from the stakeholders (Jones, 1995; Jones et al., 2018). Stakeholders hold such firms in high esteem and hence proliferate and encourage the existence of such firms. However, with very little empirical studies around IST and the vivid neglect that is offered through contravening studies, there is a dire need to investigate the relevance of such crucibles. On the other extreme, there is a dearth of studies in which the incremental benefits of IST-based stakeholder relationships have to be fostered. Analogous to the IST, the Integrative Social Contracts theory specifies conditions that socially responsible firms need to foster to materialize intangible aspects, to tangible financial outcomes. Though it is still novel to apply ISCT to business, it is to be understood that differences in communication contexts, moral reasoning and institutional structures influence the intangible contracts that society administers with the firms, which lead to their financial engagement (with firms). ISCT underscores the moral force that an informed consumer and society shall propel on a firm to conduct ethically. Finally, the integration of IST and ISCT in relation to Stakeholder Theory accentuates the notion that capitalism operates in connection with the whole ecosystem, wherein it fosters interconnected relationships amongst the suppliers, employees, investors, communities and consumers at large. So cumulatively, it could be argued that for a firm to operate, it needs to integrate the unseen social contracts that it fosters with its stakeholders and shareholders, which largely should reflect in the way it operates and transpires it to the communities. 4 S. DSOUZA ETAL. 2.1. ESG and firm performance 2.1.1. Environmental disclosures on firm performance There is substantial heterogeneity in environmental disclosures, the extent to which they are influenced by global factors and institutional practices (Al Amosh et al., 2023; Han et al., 2016; Marquis & Toffel, 2011). Although vivid studies have hinted at the positive effect of environmentally conscious companies on firm performance (Ahmed et al., 1998; Jones et al., 2018); this could be an outcome of the initial generation of environmental strategy, which eroded over time. Further, there is substantial support for the varying and decreasing effect of corporate environmental performance on corporate financial performance (Hang et al., 2019; Huang, 2021); which is yet another aspect that says initially they have a positive association, though erodes temporally; this demands studies dedicated to examining the indicative timeline, cultural dimensions (del Mar Miras‐Rodríguez et al., 2015) and size of the organization (Gallardo-Vázquez et al., 2019). With the increased criticality of understanding environmental disclosures for firm performance, it becomes critical for timely and consistent investigations to decide on this critical association. Thus, owing to the major string of research that supports the positive association between ESG disclosures and firm performance, we hypothesize the subsequent statement. 2.1.2.Social consciousness disclosure on firm performance One of the consistent proxy that have been used for ESG is the Corporate social responsibility (CSR) (Becchetti et al., 2023); which though not distinctive, has more to do with societal consciousness. The term is widely used as a technical terminology, synonymous to ESG (Busch & Friede, 2018; Busch & Schnippering, 2022; Chetty et al., 2015; Christophe & Lee, 2021; del Mar Miras‐Rodríguez et al., 2015; Demetriades & Auret, 2014; Gallardo-Vázquez etal., 2019; Han et al., 2016; Mahmood etal., 2021; Rost & Ehrmann, 2017; Tang et al., 2011; Vishwanathan et al., 2020; Q. Wang et al., 2016); though this practice has been questioned in a Korean study (Han etal., 2016). This erosion of responsibility (governance) and sustainability thought schools has led to confused constructs, besides shrinking the area of research (Bansal & Song, 2017); which could have been open to distinctive investigation. Drawing from Instrumental stakeholder theory (IST), although CSR is considered to enhance firm trust (Jones et al., 2018), enhance stakeholder reciprocation (D. T. Nguyen et al., 2022), strengthen innovation, and mitigate risk, they are cumulatively evident in defining only 20% of their association with corporate financial performance (Vishwanathan et al., 2020), which offers sufficient prompts to diversify studies conceptually and geographically. In another study atypical to Africa, this association between the focal variables was either negated (Chetty et al., 2015) or inconsistent (Okolie & Igaga, 2021), which requires further examination. Distinct from the environmental aspect is the societal contribution made by organizations that mark financial returns for organizations. While the literature projects a strong tentative association between corporate societal and financial outcomes (Flammer, 2015; Margolis et al., 2009; Rost & Ehrmann, 2017); the magnitude of their influence is questionable. Studies in distinct cultural hemispheres have also negated this relationship (Atan et al., 2018; Han et al., 2016; Shaikh, 2022); hinting at the mitigating effect of national and organizational culture and time (Chetty et al., 2015), to influence this association. 2.1.3. Governance mechanism and firm performance Governance mechanisms have been critical to firm performance and largely include variables such as board composition (size, integration of independent and executive directors, board committees), CEO leadership, frequency of board meetings, shareholder concentration, independence of the board of directors, transparency, disclosures, and others. Therefore, consistent studies have hinted at the positive association between governance and firm performance (Ahmed et al., 1998; Iqbal et al., 2022) which could be an obvious outcome of strategic efficiency and stakeholder consciousness exhibited in the governing council. Therefore, there is a need for categorical and consistent investigations in this regard. Studies have shown the positive influence of board independence, disclosure, transparency (Erena et al., 2022), and owner representation (Guluma, 2021). However, a recent study from Ghana hints at the need for a diverse composition of directors (independent and executive), larger board size, frequency of meetings, and shareholder concentration. Although the presence of committees on the board has a negative COGENT BUSINESS & MANAGEMENT 5 impact, CEO duality has no impact (Puni & Anlesinya, 2020). These findings are in contrast to all earlier investigations, suggesting the individuality of the African continent in general, and Ghana in particular. Therefore, consistent studies in distinct territorial and cultural zones are required. Furthermore, there have been fewer studies investigating governance mechanisms with organizational outcomes, and those that exist are geographically and temporally diverse, without much consistency in their findings, thus hinting at the need for categorical studies in different cultures. 2.1.4. ESG on firm performance The literature has been consistent with the preferential relationship between ESG disclosures and firm performance (Chen & Xie, 2022; Busch & Friede, 2018; Busch & Schnippering, 2022; Isachenkova, 2012; Pulino et al., 2022; Vishwanathan et al., 2020), even contextual to the pandemic (Gao et al., 2022); however, this has not always been so. Some studies have vividly suggested that while ESG positively influences financial performance, the governance mechanism modulates the ROA of an organization (Al Amosh etal., 2023). Yet another investigation evinces that statistically, although the association between ESG and firm performance is positively significant, economically, it is meek (Huang, 2021). ESG, which is an integration of environmental consciousness, social integration, and governance parameters, represents the non-financial performance of the organization, which on a shorter-run are intangible, but are consistently evinced to lead to financial return on a longer run (Hang etal., 2019) (Qureshi etal., 2021) which raises a concern when defining timelines in matricular terms (Christophe & Lee, 2021). The integration of ESG with firm performance has been markedly influenced by reporting systems (Albitar etal., 2020; Pulino etal., 2022; Waddock, 2008); and raised concerns because of the very nature of third-party evaluation, which could be questioned on the grounds of perceived greenwashing (Barrymore, 2021) and other disclosure parameters (Aragón-Correa etal., 2016; Garcia etal., 2017). Some unique investigations attempted to integrate the mediating role of female leadership, wherein women in the upper echelons of the organization were found to influence the impact of ESG on firm performance (Gupta et al., 2022; Jeong & Harrison, 2017), integrated HRM practices in this association (Gupta et al., 2022), firm size (Chen et al., 2021), operational capacity (Zhou et al., 2022) and others. These unique elements provide clues on the myriad dimensions of the focal variables and their significance to investigation across its depth and diversity. While there have been iterative studies that hint at the time constraint of financial performance, solutions have been rendered on the same, with the inclusion of internal stakeholders as phenomenal to achieve the prior (Busch & Schnippering, 2022; Khoury etal., 2021). Based on the above literature this study proposes the below hypothesis. H1: Firm ESG disclosure (ESG) has a significant and positive impact on firm performance. 2.2. ESG and firm liquidity In previous research, most scholarly works have concentrated on a single facet of ESG performance. However, investigations into the interrelationship between these three dimensions as a comprehensive representation of ESG performance and its impact on firm liquidity are limited. Consequently, pertinent studies have predominantly focused on these three dimensions. 2.2.1.Environmental disclosures on firm liquidity Drawing from the Integrative Social Contracts Theory (ISCT) and stakeholder theory, it is intuitive to understand that requisite environmental disclosures that form a part of macro-social contracts invite stakeholder conviction in the organization (Blanco, 2022; Pan, 2020; Uyar et al., 2023). It has also been empirically observed that green innovation has a robust influence on firm-specific and macroeconomic variables (Farooq etal., 2024). This recent work magnifies the influence of green innovation, not only on sustainable practices, but also on enhancing financial efficiency and reducing the necessity of cash holdings (Farooq et al., 2024); This has been partially contradicted in an empirical investigation of the food and beverage industry (Michalski, 2016); which could be attributed to the nature of the industry, shelf-life operations, and the very requisite of being environmentally conscious for a food operation. 6 S. DSOUZA ETAL. These macrosocial contracts further as larger cash flows and liquidity, which has been underscored in BRIC (Alexander et al., 2024; Farooq etal., 2024), OECD (AlHares etal., 2023), developing nations (Blanco, 2022); and various operational sectors (La Rocca et al., 2023; Michalski, 2016; Sharma et al., 2023; Wu etal., 2015). Studies have reported contradictions, wherein adhering to environmental sustainability procedures has reduced the value of cash (La Rocca et al., 2023); However, the majority of empirical investigations underscore the significance of environmentally conscious disclosures to enhance firm liquidity. 2.2.2.Social consciousness disclosure on firm liquidity Studies indicate that a higher rate of social insurance premiums leads to less firm liquidity through increased cash holdings (AlHares etal., 2023; Catherine etal., 2020; Deng etal., 2022; Sharma etal., 2023; Sinha & Vodwal, 2023). This is indicative of the negative association between ESG disclosures and cash holdings, which is further encouraged to improve firm performance and positive value of liquidity. This association is affirmed in Asia (Deng et al., 2022), Africa (Pace et al., 2022) and developed countries (AlHares et al., 2023); which makes it generalizable to a global context. There have been instances that counter this principle, wherein it has been witnessed that in financial organizations with a social mission, the cash-holding behavior is counter-cyclical (Faridi et al., 2022; Niu et al., 2022; Romero Martínez et al., 2021; Tchakoute Tchuigoua et al., 2022). While this principle generalizes across sectors; it is vital to have performed during and after the pandemic (Agurto et al., 2023; Kaneda et al., 2021; Vinod, 2022) and during crisis (Sinha & Vodwal, 2023); which goes on to substantiate the generalizability of the principle. However, caution must be taken to optimize cash levels based on the merits and trade-offs of holding cash (Alnori, 2020), and judicious use of capital structure (Chaklader & Padmapriya, 2021; Franco & Mahadevan, 2021). Empirical investigations have also been indicative of the crowdfunding cash wakf model to enable developmental projects as an alternative to maintain cash liquidity (Al-Daihani et al., 2023), although these could be exceptions for organizations engaged in human upliftment, start-ups (Grajzl etal., 2023) and households (Dillon etal., 2021). Empirical evidence hints at the need for optimum and diversified use of liquid cash for a firm’s needs depending on the nature of operations (Agurto etal., 2023; Gelo, 2022), appetite for risk (Chang etal., 2021; Qadan & Jacob, 2022), and close monitoring and management of its capabilities to generate revenue, while paying off its debts in a timely (Agurto et al., 2023; Chih & Hsiao, 2023). One of the explicitly suggested, efficient alternatives is the principle of tawarruq, wherein firms can raise liquidity through loan financing by buying installments in a local commodity owned by the bank (Barre, 2022). Thus, we posit that societal consciousness affects a firm’s liquidity. 2.2.3.Governance mechanism and firm liquidity A comprehensive investigation of a sample of 11,926 firms indicates that domestic and cross-border acquisitions due to adherence to corporate governance and scrutiny mechanisms are the strongest influencers of cash holdings (Chatterjee et al., 2021; Macoris et al., 2023). This conjecture was negated in a recent study in Japan, wherein a cross-national study indicated a negative correlation between stringent governance mechanisms and cash holdings (P. Nguyen & Rahman, 2020); which includes readable disclosures (Hasan & Habib, 2020). Yet another study hints at the significance of private equity in addition to corporate governance in determining firm liquidity (Sharma et al., 2023); besides the significance of higher stock equity (Spiropoulos & Zhao, 2023). It should be noted here that organizations with strong customer concentration exhibit tax evasion behavior (J. Wang & Mao, 2021), disciplinary trading (Liu etal., 2023); short-horizon institutional investors are yet another challenge that affects the cash holdings of an agency (Döring et al., 2021; Tran, 2020). Thus, it could be noted that improvement in corporate governance quality can have a lasting effect on the firm’s liquidity and strength of the organization (Couzoff et al., 2022); as confirmed in samples from various countries (Akhtar, 2022; Barraza et al., 2022). Technologies and systems such as EDGAR (Lai et al., 2024). Thus, we posit that corporate governance, and its disclosures significantly affect a firm’s liquidity. 2.2.4.ESG on firm liquidity The above discussion subtly hints at the significance of society, governance, and the environment on the firm’s liquidity. However, counterintuitively, when it was studied in some developed economies of the world, COGENT BUSINESS & MANAGEMENT 7 it was found that cumulatively, ESG disclosures have a significant negative association with cash holdings (AlHares etal., 2023; Pan, 2020). It has been noted that holding cash and liquid assets during the pandemic helped firms cushion COVID externalities (Cardillo et al., 2022); which is yet another instance underscoring the negative association between ESG disclosures and firm liquidity. This counterintuitive association could be an outcome of the mitigating action of stock liquidity and trading (Liu etal., 2023), CSR initiatives (Chan et al., 2017; Uyar et al., 2023), which act as connectors between the focal variables. So from the above discussion, it could be posited that ESG disclosures have a significant influence on the firm’s liquidity. Based on the aforementioned logical deduction and the first hypothesis, the subsequent hypothesis is posited. H2: Firm ESG disclosure (ESG) has a significant impact on firm liquidity. 2.3. Firm liquidity and firm performance Studies on firms’ profitability have indicated a strong negative association between liquidity and profitability, underscoring that inefficient use of liquid assets can lead to diminishing profitability (Alarussi & Gao, 2023). It is to be noted that a contextual study, indicated that firm’s profitability, tangibility, size and liquidity are major determinants of the capital structure; thus, again affirming the significance of liquidity as a mitigating agency to firm performance (Hussein & Bakry, 2022); Investigations have been unanimous to imply the significance of liquidity to firm performance (Elkabbani etal., 2020), and affirmed in samples from MENA region (Al-Ahdal et al., 2022), India (Farhan et al., 2023), Malaysia (Saif-Alyousfi et al., 2020), Ethiopia (Takele Bayiley & Bulti, 2022), Ghana (Kotey etal., 2020; Kusi etal., 2019) and sub-Saharan Africa (Tehulu, 2023). It is also noted that during M&As, liquidity and market value are significant influencers of decision-making (Abdelmoneim & Abdelrahman Fekry, 2021);, thus hinting at the importance of firm liquidity as a proxy for the financial health of an organization. Banks were found to be relatively resilient with higher liquidity (Adem, 2023); Thus, suggesting that liquidity acts as a mediator in the relationship between ESG and firm performance. This leads to the following hypothesis: H3: Firm liquidity has a mediating impact on the relationship between Firm ESG disclosure (ESG) and firm performance. Previous scholarly investigations have made considerable progress in various domains and have yielded numerous valuable results, laying a crucial groundwork for the current research project. Nevertheless, the existing body of literature is not without its limitations. Primarily, most studies tend to focus on specific aspects of ESG performance rather than adopting a holistic approach. Furthermore, while a plethora of research has delved into the relationship between ESG performance, liquidity, and firm performance, the impact of ESG performance on firm performance, along with the potential mediating role of liquidity in this context, has been largely overlooked. Therefore, this study aims to explore these issues from diverse perspectives, including a theoretical analysis, investigating how the ESG performance of publicly listed companies influences firm liquidity and, in turn, how firm liquidity impacts performance. Through the utilization of an empirical analysis employing a mediating effect model, this study seeks to examine the influence of ESG performance on firm performance. The ultimate goal is to develop an ESG performance management approach centered on liquidity, drawing insights from both theoretical and empirical analyses, and to offer practical recommendations for governmental bodies, businesses, and investors. 3. Research design & data analysis To conduct a comprehensive examination of the performance of environmental, social, and governance factors (ESG), as well as the interrelationships between firm performance and liquidity, we opted to utilize pertinent data from publicly traded companies. By carefully selecting appropriate indicators and employing an empirical model, we aimed to determine whether a correlation exists among these three variables. Additionally, we intend to ascertain whether liquidity’s influence on firm performance acts as an intermediary in the context of ESG performance. 14 S. DSOUZA ETAL. Table 5. Regression results of esg performance, liquidity, and the firm performance (Roe). Variables Model 1 Model 2 Model 3 Model 2a Model 3a Roet + 1 CR Roet + 1 CRoet + 1 esg 0.00227** −0.0613*** 0.00221** 0.000420** 0.00223**  (0.00) (0.02) (0.00) (0.00) (0.00) CR – – −0.000786 – –  – – (0.00) – – C – – – – 0.113  – – – – (0.15) size 0.0235* −0.187 0.0233* 0.00635** 0.0225*  (0.01) (0.21) (0.01) (0.00) (0.01) MB 0.0277*** −0.0643 0.0277*** 0.00495*** 0.0270***  (0.01) (0.09) (0.01) (0.00) (0.01) Lev −0.145 −4.380*** −0.149 0.0252 −0.149  (0.10) (1.58) (0.10) (0.02) (0.10) at −0.0192 −1.120** −0.0202 0.00114 −0.0194  (0.03) (0.49) (0.03) (0.01) (0.03) ag −0.00779 0.222 −0.00759 −0.00107 −0.0076  (0.01) (0.14) (0.01) (0.00) (0.01) sDg −0.00545 −0.0754 −0.00793 0.00325 −0.00841  (0.07) (1.05) (0.07) (0.01) (0.07) Loss −0.246*** −0.682 −0.247*** −0.0386*** −0.243***  (0.04) (0.69) (0.04) (0.01) (0.04) gDP 0.0108 0.375** 0.0112 0.00291 0.0108  (0.01) (0.17) (0.01) (0.00) (0.01) iF 0.0145* −0.529*** 0.0140* 0.00669*** 0.0137*  (0.01) (0.13) (0.01) (0.00) (0.01) Constant −0.496* 11.81** −0.485 −0.181*** −0.47  (0.30) (4.67) (0.30) (0.06) (0.30) observations 943 1109 943 1109 943 R-squared 0.166 0.175 0.166 0.343 0.166 Durbin-Watson stat 1.090 1.020 1.089 0.645 1.088 Breusch-godfrey LM test (Prob > chi2) 0.000 0.000 0.000 0.000 0.000 Breusch-Pagan-godfrey (Prob > chi2) 0.000 0.000 0.000 0.000 0.000 standard errors in parentheses. ***p < 0.01, **p < 0.05, *p < 0.1. Table 6. Regression results of esg performance, liquidity, and the firm performance (tobin’s Q). Variables Model 1 Model 2 Model 3 Model 2a Model 3a tobinqt + 1 CR tobinqt + 1 Ctobinqt + 1 esg 0.00390*** −0.0613*** 0.00383*** 0.000420** 0.00359**  (0.00) (0.02) (0.00) (0.00) (0.00) CR – – −0.000975 – –  – – (0.00) – – C – – – – 0.854***  – – – – (0.23) size −0.0411** −0.187 −0.0413** 0.00635** −0.0488**  (0.02) (0.21) (0.02) (0.00) (0.02) MB 0.221*** −0.0643 0.221*** 0.00495*** 0.216***  (0.01) (0.09) (0.01) (0.00) (0.01) Lev −0.685*** −4.380*** −0.690*** 0.0252 −0.715***  (0.15) (1.58) (0.15) (0.02) (0.15) at −0.0366 −1.120** −0.0378 0.00114 −0.0385  (0.05) (0.49) (0.05) (0.01) (0.05) ag 0.00584 0.222 0.00609 −0.00107 0.00728  (0.01) (0.14) (0.01) (0.00) (0.01) sDg −0.378*** −0.0754 −0.381*** 0.00325 −0.400***  (0.10) (1.05) (0.10) (0.01) (0.10) Loss −0.0691 −0.682 −0.0699 −0.0386*** −0.0425  (0.06) (0.69) (0.06) (0.01) (0.06) gDP 0.0274* 0.375** 0.0279* 0.00291 0.0269  (0.02) (0.17) (0.02) (0.00) (0.02) iF −0.00424 −0.529*** −0.00484 0.00669*** −0.0104  (0.01) (0.13) (0.01) (0.00) (0.01) Constant 2.005*** 11.81** 2.019*** −0.181*** 2.207***  (0.45) (4.67) (0.45) (0.06) (0.45) observations 943 1109 943 1109 943 R-squared 0.577 0.175 0.577 0.343 0.584 Durbin-Watson stat 0.684 1.020 0.684 0.645 0.682 Breusch-godfrey LM test (Prob > chi2) 0.000 0.000 0.000 0.000 0.000 Breusch-Pagan-godfrey (Prob > chi2) 0.000 0.000 0.000 0.000 0.000 standard errors in parentheses. ***p < 0.01, **p < 0.05, *p < 0.1. COGENT BUSINESS & MANAGEMENT 15 evaluations, they can choose superior companies and strengthen their capacity to manage risks and attain consistent returns. This study provides a strong argument for the development of ESG frameworks and regulations tailored to African markets. Governments and regulatory bodies should create incentives for companies to improve their ESG performance, such as tax benefits, subsidies, or favorable financing conditions for firms with strong ESG ratings. This can foster a business environment that prioritizes sustainability and long-term growth. African firms can greatly benefit from prioritizing ESG performance, not only in terms of improving financial outcomes but also in enhancing their market position, attracting investments, and managing long-term risks. The study serves as a guide for companies, policymakers, and investors to work together in building a sustainable and resilient corporate environment in Africa. Lastly, as the study is limited to African enterprises, the results may vary when applied to other parts of the world, even separate industrial results would vary, based on the nature of the industry and funding options. Author contributions Conceptualization, Dr. Suzan Dsouza & Dr. Mujtaba Momin; Data curation, Dr. Suzan Dsouza; Formal analysis, Dr. Mujtaba Momin and Dr. Houshang Habibniya; Methodology, Dr. Suzan Dsouza & Dr. Naliniprava Tripathy; Software, Dr. Suzan Dsouza; Supervision, Dr. Naliniprava Tripathy; Validation, Dr. Suzan Dsouza; Roles/Writing - original draft, Dr. Suzan Dsouza, Dr. Mujtaba Momin, Dr. Naliniprava Tripathy, & Dr. Houshang Habibniya. Writing - review & editing: Dr. Naliniprava Tripathy, Dr. Houshang Habibniya, Dr. Suzan Dsouza, and Dr. Mujtaba Momin. Disclosure statement No potential conflict of interest was reported by the author(s). Table 7. Regression results of esg performance, liquidity, and the firm performance (nPM). Variables Model 1 Model 2 Model 3 Model 2a Model 3a nPM t + 1 CR nPM t + 1 CnPM t + 1 esg −0.00254* −0.0613*** −0.00209 0.000420** −0.00245*  (0.00) (0.02) (0.00) (0.00) (0.00) CR – – 0.00644*** – –  – – (0.00) – – C – – – – −0.257  – – – – (0.20) size 0.0127 −0.187 0.0145 0.00635** 0.015  (0.02) (0.21) (0.02) (0.00) (0.02) MB 0.0178** −0.0643 0.0184** 0.00495*** 0.0196**  (0.01) (0.09) (0.01) (0.00) (0.01) Lev −0.420*** −4.380*** −0.388*** 0.0252 −0.411***  (0.13) (1.58) (0.13) (0.02) (0.13) at −0.0675* −1.120** −0.059 0.00114 −0.0669  (0.04) (0.49) (0.04) (0.01) (0.04) ag −0.00371 0.222 −0.00539 −0.00107 −0.00415  (0.01) (0.14) (0.01) (0.00) (0.01) sDg 0.0783 −0.0754 0.0987 0.00325 0.0851  (0.09) (1.05) (0.09) (0.01) (0.09) Loss −0.0406 −0.682 −0.0348 −0.0386*** −0.0486  (0.06) (0.69) (0.06) (0.01) (0.06) gDP −0.0175 0.375** −0.0207 0.00291 −0.0173  (0.01) (0.17) (0.01) (0.00) (0.01) iF 0.00174 −0.529*** 0.00566 0.00669*** 0.00358  (0.01) (0.13) (0.01) (0.00) (0.01) Constant 0.135 11.81** 0.0403 −0.181*** 0.0738  (0.40) (4.67) (0.40) (0.06) (0.40) observations 943 1109 943 1109 943 R-squared 0.108 0.175 0.115 0.343 0.109 Durbin-Watson stat 1.834 1.020 1.850 0.645 1.837 Breusch-godfrey LM test (Prob > chi2) 0.246 0.000 0.355 0.000 0.277 Breusch-Pagan-godfrey (Prob > chi2) 0.000 0.000 0.000 0.000 0.000 standard errors in parentheses. ***p < 0.01, **p < 0.05, *p < 0.1. 16 S. DSOUZA ETAL. About the authors Dr. Suzan Dsouza is an Associate Professor of Accounting at the American University of the Middle East, Kuwait and teaches accounting courses in the BS Accounting and MBA program. She has received her PhD in Accounting and Finance, M com and PGDFM from India. She is a certified CMA from Australia and an Accounting Technician from Institute of Chartered Accountants India. With 7 years of corporate and 16 years of academic work experience across three countries, she has authored 35 research papers, 3 book chapters,1 edited book and presented at various conferences throughout Asia and Europe. One of her recent studies related to the impact of COVID-19, was selected by W.H.O. to be a part of their database. She is an active reviewer with various international journals, as well as an editorial board member with 4 international journals. She has served as a research advisor with the Institute of Management Accountants USA. Dr. Mujtaba Momin is an Associate Professor of Human Resource Management (HRM) at the American University of the Middle East (AUM), Kuwait, affiliated with Purdue University, Indiana, USA. Previously, he held academic roles at Prince Salman Bin Abdulaziz University, in the Kingdom of Saudi Arabia. Dr. Momin’s research focuses on ethics and sustainability, as well as technology in HRM, including the impact of AI and HR analytics on modern HR practices. He also explores organizational behavior (OB), with an emphasis on employee well-being and leadership, and works on employability skills enhancement, developing strategies to better prepare students for the job market. His expertise extends to entrepreneurship, where he promotes innovation and business creation, and corporate social responsibility (CSR), highlighting the importance of ethical business practices. Dr. Momin is passionate about building strong industry-academia partnerships and improving interpersonal communication skills within professional environments. With over two decades of industry experience in Canada and Kuwait, Houshang Habibniya’s expertise includes corporate governance, corporate finance, wealth management, and business consulting, including experience in an investment bank. Teaching experience since 2011 at undergraduate and MBA levels, along with contributions to curriculum development .He has ex-chaired the Accounting Department. His research spans various topics in finance and management, with multiple publications in peer-reviewed journals. Served as a reviewer for leading international journals. Prof. Naliniprava Tripathy is currently Professor in the area of Finance & Accounting at IIM Shillong. Prior joining to IIM Shillong, she was an Associate Professor of Finance at Indian Institute of Management (IIM) Indore. She holds M. Com, M. Phil, PhD and D. Lit. Degree in Management. She is a recipient of Research Award in Management & UGC Fellowships. She is a Fulbright Scholar to Visit USA. Her area of interests are Corporate Finance, Business Valuation Investment Banking, Financial Services, Financial Engineering, Financial market and Corporate Strategy. She is an active researcher. Her work published in Australian Business Deans Council (ABDC), Scopus and Web of science journals. She is the author of over 90 scholarly research papers. She is also the author of eight books. Her current research interest includes area of Corporate Financial issues in Emerging Market, Business Valuation, Stock and Derivative Markets, Risk Management. ORCID Suzan Dsouza http://orcid.org/0000-0002-6274-6110 Data availability statement The data supporting the findings of this study are available from the corresponding author, Dr. Suzan Dsouza, upon reasonable request. References Abdelmoneim, Z., & Abdelrahman Fekry, M. (2021). 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