Corporate Finance and Environmental, Social, and Governance (ESG) Practices

Author: Gherghina, Ştefan Cristian

Publisher: Basel: MDPI - Multidisciplinary Digital Publishing Institute

Year: 2024

DOI: 10.3390/books978-3-7258-1928-7

Source: https://www.econstor.eu/bitstream/10419/312697/1/MDPI_9783725819270.pdf

Ghe ghina, Ş e an C is ian (Ed.)
Book
Co po a e Finance and En i onmen al, Social, and
Go e nance (ESG) P ac ices
P o ided in Coope a ion wi h:
MDPI – Mul idisciplina y Digi al Publishing Ins i u e, Basel
Sugges ed Ci a ion: Ghe ghina, Ş e an C is ian (Ed.) (2024) : Co po a e Finance and En i onmen al,
Social, and Go e nance (ESG) P ac ices, ISBN 9783725819270, MDPI - Mul idisciplina y Digi al
Publishing Ins i u e, Basel,
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Special Issue Rep in
Co po a e Finance and
En i onmen al, Social, and
Go e nance (ESG) P ac ices
Edi ed by
Ş e an C is ian Ghe ghina
Co po a e Finance and En i onmen al,
Social, and Go e nance (ESG)
P ac ices
Co po a e Finance and En i onmen al,
Social, and Go e nance (ESG)
P ac ices
Edi o
S
, e an C is ian Ghe ghina
Basel •Beijing •Wuhan •Ba celona •Belg ade •No i Sad •Cluj •Manches e

Edi o
S
, e an C is ian Ghe ghina
Bucha es Uni e si y o Economic S udies
Bucha es
Romania
Edi o ial O ﬁce
MDPI AG
G osspe e anlage 5
4052 Basel, Swi ze land
This is a ep in o a icles om he Special Issue published online in he open access jou nal
Jou nal o Risk and Financial Managemen (ISSN 1911-8074) (a ailable a : h ps://www.mdpi.com/
jou nal/j m/special issues/YOP4UZRED3).
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Con en s
Abou he Edi o .............................................. ii
S
, e an C is ian Ghe ghina
Co po a e Finance and En i onmen al, Social, and Go e nance (ESG) P ac ices
Rep in ed om: J. Risk Financial Manag. 2024,17, 308, doi:10.3390/j m17070308 .......... 1
Banu Dince and Cane Dince
Insigh s in o Sus ainabili y Repo ing: T ends, Aspec s, and Theo e ical Pe spec i es om a
Quali a i e Lens
Rep in ed om: J. Risk Financial Manag. 2024,17, 68, doi:10.3390/j m17020068 .......... 7
Nguyen La Soa, Do Duc Duy, T an Thi Thanh Hang and Nguyen Dieu Ha
The Impac o En i onmen al Accoun ing In o ma ion Disclosu e on Financial Risk: The Case
o Lis ed Companies in he Vie nam S ock Ma ke
Rep in ed om: J. Risk Financial Manag. 2024,17, 62, doi:10.3390/j m17020062 .......... 23
Sun-Keun Yoo and Se-Hak Chun
The E ec s o Co po a e Financial Disclosu e on S ock P ices: A Case S udy o Ko ea’s
Compulso y P elimina y Ea nings Announcemen s
Rep in ed om: J. Risk Financial Manag. 2023,16, 504, doi:10.3390/j m16120504 .......... 41
Ahmed Sabe Moussa and Mahmoud Elma zouky
Does Capi al Expendi u e Ma e o ESG Disclosu e? A UK Pe spec i e
Rep in ed om: J. Risk Financial Manag. 2023,16, 429, doi:10.3390/j m16100429 .......... 50
Ghouma Ghouma, Hamdi Becha, Maha Kalai, Kamel Helali and My iam E z
Do IFRS Disclosu e Requi emen s Reduce he Cos o Equi y Capi al? E idence om Eu opean
Fi ms
Rep in ed om: J. Risk Financial Manag. 2023,16, 374, doi:10.3390/j m16080374 .......... 69
Laila Mohamed Alshawad y Aladwey and Raghad Abdulka im Alsudays
Does he Cul u al Dimension Inﬂuence he Rela ionship be ween Fi m Value and Boa d Gende
Di e si y in Saudi A abia, Media ed by ESG Sco ing?
Rep in ed om: J. Risk Financial Manag. 2023,16, 512, doi:10.3390/j m16120512 .......... 88
Balamu alik ishnan Chakk a a hy, F ancis Gnanaseka I udayasamy,
A ul Ramana ha Pillai, Rajesh Elango an, Na a ajan Renga aju and
Sa yana ayana Pa ayi am
The Rela ionship be ween P omo e s’ Holdings, Ins i u ional Holdings, Di idend Payou Ra io
and Fi m Value: The Fi m Age and Size as Mode a o s
Rep in ed om: J. Risk Financial Manag. 2023,16, 489, doi:10.3390/j m16110489 ..........109
Jagjee an Kanoujiya, Pooja Jain, Sou ik Bane jee, Rameesha Kal a, Shailesh Ras ogi and
Venka a M udula Bhima a apu
Impac o Le e age on Valua ion o Non-Financial Fi ms in India unde P oﬁ abili y’s
Mode a ing E ec : E idence in Scena ios Applying Quan ile Reg ession
Rep in ed om: J. Risk Financial Manag. 2023,16, 366, doi:10.3390/j m16080366 ..........124
Mochamad Roland Pe dana, Achmad Sudi o, Kusuma Ra nawa i and Roﬁa y Roﬁa y
Does Sus ainable Finance Wo k on Banking Sec o in ASEAN?: The E ec o Sus ainable
Finance and Capi al on Fi m Value wi h Ins i u ional Owne ship as a Mode a ing Va iable
Rep in ed om: J. Risk Financial Manag. 2023,16, 449, doi:10.3390/j m16100449 ..........144
Vinay Khandelwal, P asoon T ipa hi, Va un Cho ia, Mohi S i as a a, P ashan Sha ma and
Sushil Kalyani
Examining he Impac o Agency Issues on Co po a e Pe o mance: A Bibliome ic Analysis
Rep in ed om: J. Risk Financial Manag. 2023,16, 497, doi:10.3390/j m16120497 ..........163
Ainulashikin Ma zuki, Fauzias Ma No , Nu Ainna Ramli, Mohamad Yazis Ali Basah and
Muhammad Ridhwan Ab Aziz
The Inﬂuence o ESG, SRI, E hical, and Impac In es ing Ac i i ies on Po olio and Financial
Pe o mance— Bibliome ic Analysis/Mapping and Clus e ing Analysis
Rep in ed om: J. Risk Financial Manag. 2023,16, 321, doi:10.3390/j m16070321 ..........185
Ma ia Riche and Ma ek Dudek
Selec ed P oblems o he Au omo i e Indus y—Ma e ial and Economic Risk
Rep in ed om: J. Risk Financial Manag. 2023,16, 368, doi:10.3390/j m16080368 ..........204
i
Abou he Edi o
S
, e an C is ian Ghe ghina
S
, e an C is ian Ghe ghina, PhD. Habil., is a P o esso a he Depa men o Finance, he Facul y
o Finance and Banking, and a PhD. supe iso a he Finance Doc o al School, he Bucha es
Uni e si y o Economic S udies, Romania. His a eas o in e es pe ain o co po a e ﬁnance and
go e nance, quan i a i e ﬁnance, po olio managemen , and sus ainable de elopmen . He has
au ho ed and co-au ho ed se e al books and a icles published in op jou nals and has discussed his
s udies a many in e na ional con e ences. He se es as a e e ee o a ious leading jou nals while
also being an Edi o ial Boa d Membe o Economies and he Jou nal o Risk and Financial Managemen ,
among o he jou nals indexed by Cla i a e Analy ics, he Web o Science, he Social Sciences Ci a ion
Index (SSCI), he Science Ci a ion Index Expanded (SCIE), he Eme ging Sou ces Ci a ion Index
(ESCI), and o he epu ed in e na ional da abases.
ii
J. Risk Financial Manag. 2024,17, 308
Vel i, S e ania, Ma ia Elena B uni, Gianpaolo Iazzolino, Dona o Mo ea, and Gio anni Baldissa o. 2023. Do ESG ac o s imp o e
u ili ies co po a e e ﬁciency and educe he isk pe cei ed by c edi lending ins i u ions? An empi ical analysis. U ili ies Policy
81: 101520. [C ossRe ]
Wang, Haijun, Shuaipeng Jiao, and Chao Ma. 2024. The impac o ESG esponsibili y pe o mance on co po a e esilience. In e na ional
Re iew o Economics & Finance 93: 1115–29. [C ossRe ]
Wong, Jin Boon, and Qin Zhang. 2024. ESG epu a ion isks, cash holdings, and payou policies. Finance Resea ch Le e s 59: 104695.
[C ossRe ]
Xue, Qinyuan, Yi ei Jin, and Cheng Zhang. 2024. ESG a ing esul s and co po a e o al ac o p oduc i i y. In e na ional Re iew o
Financial Analysis 95: 103381. [C ossRe ]
Xue, Rui, Hongqi Wang, Yuhao Yang, Ma ina K. Linnenluecke, Kai ang Jin, and Cyn hia Weiyi Cai. 2023. The ad e se impac o
co po a e ESG con o e sies on sus ainable in es men . Jou nal o Cleane P oduc ion 427: 139237. [C ossRe ]
Zhang, Cong, Uma Fa ooq, Dima Jamali, and Mohammad Mah ab Alam. 2024a. The ole o ESG pe o mance in he nexus be ween
economic policy unce ain y and co po a e in es men . Resea ch in In e na ional Business and Finance 70: 102358. [C ossRe ]
Zhang, Hua, Huaqing Zhang, Li Tian, Shengli Yuan, and Yongqian Tu. 2024b. ESG pe o mance and li iga ion isk. Finance Resea ch
Le e s 63: 105311. [C ossRe ]
Zhang, Yingying, Dongqi Wan, and Lei Zhang. 2024c. G een c edi , supply chain anspa ency and co po a e ESG pe o mance:
E idence om China. Finance Resea ch Le e s 59: 104769. [C ossRe ]
Disclaime /Publishe ’s No e:
The s a emen s, opinions and da a con ained in all publica ions a e solely hose o he indi idual
au ho (s) and con ibu o (s) and no o MDPI and/o he edi o (s). MDPI and/o he edi o (s) disclaim esponsibili y o any inju y o
people o p ope y esul ing om any ideas, me hods, ins uc ions o p oduc s e e ed o in he con en .
6

Ci a ion: Dince , Banu, and Cane
Dince . 2024. Insigh s in o
Sus ainabili y Repo ing: T ends,
Aspec s, and Theo e ical Pe spec i es
om a Quali a i e Lens. Jou nal o
Risk and Financial Managemen 17: 68.
h ps://doi.o g/10.3390/
j m17020068
Academic Edi o : ¸S e an
C is ian Ghe ghina
Recei ed: 14 Decembe 2023
Re ised: 2 Feb ua y 2024
Accep ed: 7 Feb ua y 2024
Published: 10 Feb ua y 2024
Copy igh : © 2024 by he au ho s.
Licensee MDPI, Basel, Swi ze land.
This a icle is an open access a icle
dis ibu ed unde he e ms and
condi ions o he C ea i e Commons
A ibu ion (CC BY) license (h ps://
c ea i ecommons.o g/licenses/by/
4.0/).
Jou nal o
Risk and Financial
Managemen
A icle
Insigh s in o Sus ainabili y Repo ing: T ends, Aspec s,
and Theo e ical Pe spec i es om a Quali a i e Lens
Banu Dince and Cane Dince *
Depa men o Business Adminis a ion, Facul y o Economic and Adminis a i e Sciences,
Gala asa ay Uni e si y, Çı agan Cad. No: 36, O aköy, Is anbul 34349, Tu key; [email p o ec ed]
*Co espondence: [email p o ec ed]
Abs ac :
This e iew aims o p o ide a comp ehensi e syn hesis o he co e age o sus ainabili y e-
po ing (SR) aspec s wi hin he co pus o quali a i e SR li e a u e. I seeks o elucida e he heo e ical
and concep ual ounda ions ha ha e guided he ajec o y o he sus ainabili y ﬁeld and illumi-
na e he quali a i e me hodologies used in his body o li e a u e. Employing a sys ema ic e iew
me hodology, his s udy unde akes an exhaus i e examina ion o 242 selec ed empi ical s udies on
sus ainabili y epo ing conduc ed du ing he pe iod spanning om 2001 o 2022. The no ewo hy
con ibu ion o his e iew o he ealm o sus ainabili y esea ch lies in i s iden iﬁca ion o unexplo ed
and unde explo ed domains ha me i a en ion in o hcoming in es iga ions. These include bu a e
no limi ed o employee heal h and sa e y p ac ices, p oduc esponsibili y, and gende dynamics.
While s akeholde heo y and ins i u ional heo y ha e been dominan heo ies wi hin he selec ed
li e a u e, he explo a ion o mo al legi imacy emains la gely unde in es iga ed. I is essen ial o
unde sco e ha his e iew exclusi ely encompasses quali a i e s udies, owing o he ichness and
e sa ili y inhe en in quali a i e esea ch me hods. This delibe a e selec ion enables esea che s o
employ di e se me hodological and heo e ical amewo ks o gain a p o ound unde s anding o
engagemen wi hin he p ac ice o sus ainabili y epo ing. This e iew in oduces an in e es ing
app oach by conside ing he hema ic scope, as well as heo e ical and me hodological choices,
obse ed ac oss he selec ed s udies.
Keywo ds:
sus ainabili y epo ing; non-ﬁnancial epo ing; sys ema ic e iew; sus ainabili y ac-
coun ing; legi imacy heo y; s akeholde heo y
1. In oduc ion
The mul i ude o en i onmen al, economic, and social c ises spanning he las 40 yea s
has p ecipi a ed a heigh ened call o esea ch in he ﬁeld o SR (Ca negie 2012; Humph ey
and Gend on 2015; Une man and Benne 2004; Qian e al. 2021). Sus ainabili y epo ing
(SR) esea ch has gained subs an ial momen um due o i s consequen ial implica ions in
social, economic, and poli ical domains (An onini e al. 2020; Cho and Gio dano-Sp ing
2015; Joseph 2012). O iginally based on en i onmen al e ec s (A unachalam e al. 2016;
Bi chall e al. 2015; Michelon and Rod igue 2015), SR expanded apidly o co e mul iple
a eas. One such pionee ing s ep in his ega d is he iple bo om line (TBL), which
ad oca es o he inco po a ion o plane , people, and p oﬁ as ocal hemes o achie ing
comp ehensi e and anspa en epo ing p ac ices (Ja ed e al. 2021; Dumay e al. 2016).
Acco dingly, schola s ha e p oﬁ ed om hese h ee dimensions in hei wo ks con-
duc ed om many pe spec i es (O’Sulli an and O’Dwye 2015; Solomon e al. 2011;
Williams and Adams 2013). This e iew aims o o e a pe spec i e on he aspec s o
sus ainabili y epo ing ha ha e been add essed wi hin a designa ed body o li e a u e
and elucida es he quali a i e me hodologies ha ha e been ha nessed o ackle hese
schola ly inqui ies.
Sus ainabili y epo ing is d i en by he in e connec edness o en i onmen al, social,
and economic ac o s. I encompasses p ese ing ecosys ems, mi iga ing clima e change,
J. Risk Financial Manag. 2024,17, 68. h ps://doi.o g/10.3390/j m17020068 h ps://www.mdpi.com/jou nal/j m
J. Risk Financial Manag. 2024,17,68
and esponsible esou ce managemen . Social equi y, economic s abili y, and global collab-
o a ion a e in eg al aspec s. P io i izing human heal h, egula o y adhe ence, consume
p e e ences o sus ainabili y, and a ocus on long- e m iabili y collec i ely deﬁne he
e hos o sus ainabili y, ensu ing a esilien and h i ing u u e. Howe e , po en ial d aw-
backs include he isk o g eenwashing, whe e o ganiza ions may p o ide misleading
in o ma ion, unde mining he c edibili y o epo ing (Hahn and Kühnen 2013). The lack
o a uni e sal s anda d can esul in inconsis encies, hinde ing meaning ul compa isons.
Selec i e epo ing, esou ce in ensi y, and limi ed s akeholde engagemen also pose chal-
lenges. A sho - e m ocus and he complexi y o epo ing may con ibu e o incomple e
o con using na a i es. In essence, while sus ainabili y epo ing o e s ad an ages, ad-
d essing issues such as g eenwashing and imp o ing s anda diza ion a e c ucial in o de
o maximize i s e ec i eness (Dunba e al. 2021). Acco dingly, sus ainabili y epo ing,
despi e enhancing anspa ency, b ings inhe en isks ha can cause epu a ional damage,
legal consequences, ﬁnancial impac s, and s akeholde discon en . Ope a ional challenges,
inconsis ency in epo ing amewo ks, and da a secu i y conce ns u he complica e he
landscape. The complexi y o epo ing can o e whelm o ganiza ions, leading o e o s
(G ay 2006). Mi iga ing hese isks equi es ca e ul conside a ion, adhe ence o s anda ds,
and a commi men o au hen ici y in epo ing (Ioannou and Se a eim 2017). The e o e,
while p io e iews ha e concen a ed on di e se aspec s such as sus ainabili y pe o -
mance, measu emen , and heo e ical amewo ks (Chung and Cho 2018); d i e s o
SR adop ion and he quali y o epo ing (Hahn and Kühnen 2013); di e en o ma s
and de e minan s o SR (Dienes e al. 2016); he inﬂuence o managemen con ol on SR
(T axle e al. 2020)
; and he ex en o in eg a ed epo ing (IR), his e iew dis inguishes
i sel by adop ing a unique app oach. Ra he han ocusing exclusi ely on syn hesizing
a ious an eceden s o a singula ace o SR, his e iew aims o in es iga e sus ainabil-
i y epo ing’s key hemes, aspec s, heo e ical ounda ions, and me hodological choices.
This epis emological emphasis acili a es he cohe en o mula ion o esea ch inqui ies
wi hin a logical amewo k, he eby aiding esea che s in comp ehending he na u e and
scope o sus ainabili y aspec s and guiding hei me hodological decisions.
In ecen yea s, he landscape o sus ainabili y epo ing has wi nessed signiﬁcan
egula o y changes. Go e nmen s and in e na ional bodies ha e ecognized he i al ole o
anspa en epo ing in achie ing global sus ainabili y goals. These changes include, o in-
s ance, he implemen a ion o s ic e en i onmen al s anda ds, manda es o co po a e
social esponsibili y disclosu es, and an emphasis on e hical business p ac ices. This s udy
is mo i a ed by he necessi y o analyzing he impac o hese egula o y shi s on he
me hodologies and ocus o sus ainabili y epo ing esea ch.
Despi e he g owing body o SR li e a u e, he e emain no able gaps ha equi e
a en ion. P io e iews ha e concen a ed on di e se aspec s such as sus ainabili y pe -
o mance, measu emen , and heo e ical amewo ks (Chung and Cho 2018). Howe e ,
gaps pe sis in ou unde s anding o he nuanced in e ac ions be ween di e en dimensions
o sus ainabili y epo ing, he e ec i eness o eme ging epo ing o ma s, and he in eg a-
ion o sus ainabili y in o co e business s a egies. This s udy aims o add ess hese gaps by
adop ing a holis ic app oach, syn hesizing exis ing knowledge, and iden i ying a enues
o u he explo a ion. Mo eo e , eme ging ends in sus ainabili y epo ing, such as
he ise o in eg a ed epo ing (IR) and he inc easing emphasis on social impac me ics,
p esen new challenges and oppo uni ies. This s udy is d i en by a commi men o s aying
a he o e on o hese ends, examining hei implica ions o esea ch me hodologies,
and con ibu ing insigh s ha can guide u u e p ac ices.
Fu he mo e, he e e -expanding scope o sus ainabili y epo ing, om i s oo s in
en i onmen al conce ns o encompassing di e se dimensions like social esponsibili y and
economic iabili y, highligh s he need o a comp ehensi e examina ion. The dynamic
na u e o sus ainabili y epo ing, coupled wi h ecen egula o y changes, gaps in p e ious
esea ch, and eme ging ends, unde sco es he impo ance o his s udy. By del ing
in o hese aspec s, his esea ch aims o p o ide a comp ehensi e unde s anding o he
8
J. Risk Financial Manag. 2024,17,68
e ol ing landscape o sus ainabili y epo ing and i s implica ions o academia, businesses,
and policy make s and o explo e no only wha sus ainabili y epo ing includes bu also
why ce ain hemes and aspec s ha e gained p ominence o e ime.
This e iew akes in o conside a ion only quali a i e empi ical s udies published in
pee - e iewed jou nals. This selec i e bounda y is mo i a ed by se e al conside a ions.
Fi s , he ﬁeld o SR is cha ac e ized by a ple ho a o quali a i e esea ch me hodologies
(Adams and La inaga-Gonzalez 2019; Pa ke and No hco 2016). Secondly, he abundan
in o ma ion inhe en in quali a i e esea ch inci es esea che s o use a di e se ange o
app oaches o a deepe and b oade comp ehension o SR engagemen (Pa ke e al. 2011).
Las ly, quali a i e esea ch a o ds he capaci y o del e in o he p ocesses, con ex ual
di e ences, and complex dynamics (Pa ke 2008; Pa ke 2011). The na u e o quali a i e
esea ch p o ides an oppo uni y o closely sc u inize he impac o SR.
The emainde o his pape is o ganized as ollows. In Sec ion 2, we ou line he
esea ch. Then, we epo ou ﬁndings, co e ing he aspec s o sus ainabili y epo ing in
he li e a u e, heo ies used in he li e a u e, and me hodologies employed. Tin he ﬁnal
sec ions o he pape , we del e in o a comp ehensi e discussion o he e iew ﬁndings,
p o ide a conclusion, and sugges a enues o u u e esea ch.
2. Ma e ials and Me hods
The cu en e iew employed a sys ema ic e iew app oach o sys ema ically de ec ,
selec , and e alua e he mos pe inen s udies aligned wi h he objec i es o his e iew
as sugges ed by many schola s in he ﬁeld (T anﬁeld e al. 2003). Conce ning he concep
o sus ainabili y, a ious e ms, such as en i onmen al, social, and go e nance (ESG)
epo ing; co po a e ci izenship, co po a e social esponsibili y (CSR); and social accoun ing,
a e o en u ilized in e changeably (Pa ke 2008; G ay 2014). Despi e he asso men o
e minologies in use, all hese ope a ional deﬁni ions undamen ally sha e he same essence:
he communica ion o in o ma ion abou an o ganiza ion’s en i onmen al, economic, and
social pe o mance o a di e se a ay o s akeholde s. Ano he ela i ely ecen end in
epo ing is in eg a ed epo ing (IR), whe ein bo h ﬁnancial and non-ﬁnancial o ms o
in o ma ion a e p esen ed in a uniﬁed o ma . The non-ﬁnancial ace o IR is he p ima y
ocal poin o sus ainabili y esea ch (Gleeson-Whi e 2014).
The a ious e ms used in he li e a u e o deﬁne he di e se concep ualiza ions
and applica ions o SR discussed abo e (CSR, social accoun ing, co po a e ci izenship,
ESG epo ing, in eg a ed epo ing, GRI, TBL, and sus ainabili y) we e inco po a ed in o
he sea ch s ing used du ing he abs ac keywo d sea ch. To b oaden he sea ch on
sus ainabili y epo ing, he wo ds epo ing and disclosu e we e added o he o he e ms
o possible combina ions o e ms including “co po a e social esponsibili y”, “global
epo ing ini ia i e”, “sus ainable de elopmen ”, “sus ainabili y”, “ iple bo om line”,
“in eg a ed”, “en i onmen al”, “co po a e ci izenship”, “GRI”, “TBL”, “social accoun ing”,
“IR”, “sus ainable de elopmen ”, “en i onmen social go e nance”, and “ESG”. To na ow
he a ea o he esea ch, keywo ds such as “quali a i e”, “explo a o y s udy”, “explana o y
s udy”, and “in e p e i e” we e added o he sea ch s ings using he Boolean ope a o
“and”, limi ing he sea ch only o quali a i e esea ch.
The sea ch was conduc ed in Ap il 2023 ac oss ou dis inguished ci a ion da abases:
Scopus, Business Sou ce Comple e, P oQues Business, and Web o Science. The selec ion
o hese da abases adhe es o he p eceden se by p e ious sys ema ic e iews in he
ﬁeld (Adams and La inaga-Gonzalez 2019; Hinze and Sump 2019) and p o ided us
wi h a cohe en sample o a icles. Fu he mo e, ou esea ch is delimi ed o a icles
published in he English language du ing he las wo decades (2001–2022). This empo al
cons ain was imposed because publica ions wi h a sus ainabili y ocus du ing he ea ly
2000s had limi ed and inconsequen ial impac s. In all da abases, app oxima ely 6% o he
a icles we e published be ween 2001 and 2010. This end aligns wi h he obse a ions
made by (T anﬁeld e al. 2003) in hei examina ion o engagemen esea ch on co po a e
social esponsibili y (CSR). As no ed by (Qian e al. 2021; Ja ed e al. 2021), he mos
9
J. Risk Financial Manag. 2024,17,68
subs an ial ad ancemen s in sus ainabili y ha e occu ed in he pas wo decades. The e o e,
he exclusion o esea ch published be o e 2001 is adequa e o e iew he body o li e a u e
on sus ainabili y epo ing (SR).
The consolida ion o all a icles in one lis yielded a o al o 852 a icles. These a icles
unde wen ano he elimina ion ound o selec he empi ical s udies, i.e., hose g ounded
in expe iences, eal-li e obse a ions, phenomena, and empi ical e idence. Consequen ly,
a icles ca ego ized as e iews, p esc ip i e o desc ip i e pieces, commen a y, o gene al
discussions we e de e mined o be non-empi ical and excluded om he sample. Mo eo e ,
a icles ha did no p ima ily cen e on non-ﬁnancial disclosu es o sus ainabili y we e
also excluded. Finally, duplica e pape s in hese ou da abases we e elimina ed, a o al
o 14 a icles using mixed me hods we e added o he co pus o e iew, and he selec ion
p ocess esul ed in a o al o 242 a icles o u he e iew and in es iga ion o heo e ical
amewo ks and me hodologies employed. Figu e 1 shows he a icle selec ion p ocess.
Selec ed Da abases
WOS Scopus P oQues Business SC
141 a icles 290 a icles 201 a icles 220 a icles
Ini ial o al numbe o a icles a e me ging he esul s
852
To al numbe o a icles a e elimina ing non-quali a i e and
i ele an a icles
253
To al numbe o a icles a e elimina ion o duplica e i ems
228
To al numbe o a icles a e adding a icles using
mixed me hods
242
Figu e 1. A icle selec ion p ocess.
Acco dingly, he aspec s o sus ainabili y epo ing empi ically explo ed in he se-
lec ed li e a u e, quali a i e me hodologies, and heo e ical amewo ks a e he ocus o
his sys ema ic e iew. By add essing hese poin s, his e iew con ibu es subs an i e
insigh s in o he con empo a y ends and di e se sus ainabili y dimensions. Mo eo e ,
i o e s guidance wi h espec o a eas wa an ing u he a en ion, beneﬁ ing p ac i ione s
and egula o s by highligh ing he domains whe e heigh ened p ac ical and egula o y
a angemen s a e needed (Dumay e al. 2016).
10
J. Risk Financial Manag. 2024,17,68
3. Desc ip i e Analysis
The sys ema ic e iew p ocedu e esul ed in he iden iﬁca ion o a o al o 242 a icles.
These a icles unde wen a subsequen sc eening phase o elucida e hei ﬁndings. Ini ially,
all a icles we e classiﬁed based on he disciplina y ocus o he jou nals in which hey we e
published. These ocus a eas included sus ainabili y, ﬁnance, accoun ing, economics, and
managemen . Fu he analysis p o ided a desc ip i e o e iew o sus ainabili y epo ing
publica ions acco ding o jou nal ocus.
Among he chosen a icles, 33% (80) we e published in jou nals ha p io i ize social
and en i onmen al accoun ing, such as “Sus ainabili y”. Con e sely, 32% (78) o he a icles
appea ed in jou nals ocused on accoun ing and ela ed ﬁelds. This highligh s he no able
in ol emen o accoun ing schola s in ad ancing esea ch on sus ainabili y. Fu he mo e,
o he jou nals concen a ing on business and managemen ha e also made subs an ial
con ibu ions o he de elopmen o sus ainabili y esea ch.
The desc ip i e analysis ca ego ized he s udies in o wo b oad economic g oups:
de eloped and de eloping economies. This analysis e ealed ha 64% (155) o he s udies
we e conduc ed wi h a ocus on de eloped Eu opean economies. Con e sely, a ela i ely
smalle po ion o empi ical s udies, o aling 31% (75), ocused on eme ging economies.
This ocus on sus ainabili y epo ing in he esea ch can be a ibu ed o well-es ablished
and s ingen egula o y amewo ks in place in hese coun ies. These egula ions may
manda e o encou age businesses o disclose in o ma ion ela ed o hei en i onmen al,
social, and go e nance (ESG) p ac ices. Mo eo e , de eloped economies gene ally ha e
highe le els o awa eness and adhe ence o co po a e go e nance s anda ds. As sus ain-
abili y epo ing is o en linked o b oade co po a e go e nance p ac ices, esea che s may
ﬁnd mo e da a and in e es in his a ea wi hin hese economies.
In es o s and s akeholde s in de eloped and Eu opean economies exhibi a highe
demand o sus ainabili y- ela ed in o ma ion. This demand is d i en by ac o s such as
socially esponsible in es ing, e hical consume ism, and p essu e om ad ocacy g oups.
Addi ionally, esea che s may ﬁnd i mo e easible o conduc s udies in de eloped
economies due o be e access o esou ces, da a, and in o ma ion. De eloped na ions
ypically ha e mo e es ablished esea ch ins i u ions, da abases, and ne wo ks ha acili a e
comp ehensi e s udies on sus ainabili y epo ing. Resea che s may p io i ize s udying
hese economies o unde s and and po en ially shape global ends in sus ainabili y e-
po ing. Finally, de eloped and Eu opean economies ha e o en been a he o e on o
adop ing sus ainabili y epo ing p ac ices. The ma u i y o hese p ac ices p o ides a ich
g ound o esea che s o analyze he e olu ion, e ec i eness, and impac o sus ainabil-
i y epo ing o e ime. While he e is a p edominan ocus on de eloped and Eu opean
economies, i is essen ial o u u e esea ch o b oaden i s scope o include eme ging ma -
ke s and de eloping economies. This expansion would con ibu e o a mo e comp ehensi e
unde s anding o he global landscape o sus ainabili y epo ing and add ess he need o
inclusi e and di e se pe spec i es.
3.1. Desc ip ion o Aspec s o Quali a i e Sus ainabili y Repo ing
Sus ainabili y has ga ne ed subs an ial a en ion wi hin o ganiza ions since he begin-
ning o he millennium, d i en by global ecogni ion o he endu ing impac o business
ac i i ies on bo h cu en and u u e gene a ions (Bebbing on and Une man 2018). Con-
sequen ly, he Uni ed Na ions in oduced a comp ehensi e deﬁni ion o sus ainabili y,
s a ing ha any decision ha “mee s he needs o he p esen wi hou comp omising he
abili y o u u e gene a ions o mee hei own needs” qualiﬁes as a sus ainable decision o
ac ion. Since he publica ion o his epo , he concep o sus ainabili y has expanded o
encompass social, en i onmen al, and economic dimensions signiﬁcan ly inﬂuenced by
human decisions. A he o ganiza ional le el, Elking on (Elking on 2004) de eloped he
iple bo om line (TBL) amewo k, which is g ounded in se en d i e s o sus ainabili y
p og ess. The TBL concep o e s aluable guidance and p inciples o deﬁning en i on-
men al, social, and economic esponsibili ies wi hin o ganiza ions (Gimenez e al. 2012;
11

J. Risk Financial Manag. 2024,17,68
Rambaud and Richa d 2015). The TBL concep encompasses he social, en i onmen al, and
economic in e ac ions o an o ganiza ion (G ay 2014).
The iple bo om line (TBL) app oach o e s o ganiza ions a comp ehensi e and
well-o ganized amewo k o he implemen a ion, epo ing, and disclosu e o a ious
sus ainabili y p ac ices. One no able de elopmen s emming om he TBL is he people,
plane , and p oﬁ (3Ps) epo ing amewo k. The widesp ead accep ance o he TBL is
shown by i s adop ion as a e e ence model by he Global Repo ing Ini ia i e (GRI).
Exis ing esea ch li e a u e suppo s he no ion ha he GRI is ecognized as he mos
igo ous guideline o sus ainabili y epo ing (SR) (Boi al 2013) and has become he
s anda d amewo k o SR (Bananuka e al. 2019; Bananuka e al. 2022; Pe cha a and
Zaman 2019). The GRI’s classiﬁca ion o b oade sus ainabili y dimensions in o speciﬁc
ca ego ies and subca ego ies has b ough p ecision o he ocus o academic esea ch,
enabling esea che s o con ibu e o speciﬁc sus ainabili y dimensions. Acco dingly, he
e iew shows ha esea che s ollowed he TBL app oach and ha he en i onmen (plane )
was he ame used in 25% (60) o he selec ed li e a u e, wi h a gene al ocus on clima e
change, ca bon accoun ing, wa e managemen , and biodi e si y. The social (people) ame
was used in 17% (41) o he a icles, wi h a ocus on employees, employee epo ing,
and social disclosu es. Finally, he economic (p oﬁ ) ame was used in 10% (24) o he
wo ks, aking in o conside a ion mos ly he ax issues ela ed o sus ainabili y and CSR.
O he wo ks (48%) we e based on mul iple aspec s o sus ainabili y epo ing.
3.2. Main Theo e ical F amewo ks in he Li e a u e
A heo e ical amewo k is he lens h ough which esea che s iew, explain, and
comp ehend eali y (An a a and Me z 2014). I o ms he ounda ion o a esea che ’s
me hodological choices. Consequen ly, di e en heo e ical pe spec i es exis o explain
sus ainabili y epo ing (SR) as ei he an o ganiza ional change p ocess o a s akeholde
managemen p ocess. The p ima y heo e ical amewo ks in he selec ed a icles we e
legi imacy heo y (LT), s akeholde heo y (ST), and ins i u ional heo y (IT).
The ollowing sec ion depic s he h ee impo an heo ies used in he selec ed li e a u e.
3.2.1. S akeholde Theo y
SR encompasses many g oups, ex ending beyond jus unding p o ide s (G ay 2006).
In he con ex o SR, s akeholde s a e “En i ies, associa ions, and indi iduals ha could be
a ec ed by he ac ions and decisions o he epo ing o ganiza ion. S akeholde s include
employees, wo ke s, supplie s, he communi y, ac i is s, ins i u ional in es o s, and ci il
socie y o ganiza ions” (G ay 2006).
The complexi y and dynamism associa ed wi h he iden iﬁca ion o di e se s ake-
holde s deal wi h ﬁ e dis inc o ganiza ion–s akeholde ela ionships in en i onmen al
epo ing: demanding, p omo ing, commi ing, dona ing, and p e en ing (G ay 2006;
Onkila e al. 2014). S akeholde heo y acili a es communica ion be ween o ganiza ions
and s akeholde s h ough ou ace s: desc ip i e, ins umen al, no ma i e, and manage ial
aspec s.
3.2.2. Legi imacy Theo y
This heo y posi s ha an o ganiza ion aligns i s ac ions wi h socially desi able “no ms,
alues, belie s, and deﬁni ions” (Suchman 1995). Suchman (1995) a ﬁ med ha o gani-
za ions seek legi imacy h ough p agma ic, mo al, and cogni i e a ionales. This e iew
syn hesized he selec ed li e a u e acco ding o hese h ee a ionales. A conside able
numbe o a icles (36 a icles, cons i u ing 15%) employed LT as a ounda ional amewo k.
Table 1 shows he main heo ies and ela ed app oaches in he li e a u e.
12
J. Risk Financial Manag. 2024,17,68
Table 1. Main heo ies and ela ed app oaches in he li e a u e.
Theo y Main Theo e ical
App oaches Resea ch Subjec s Examples om he Selec ed Li e a u e
S akeholde
Theo y
Desc ip i e
Ins umen al
Cu en s akeholde managemen
si ua ion and needs (Michelon and Rod igue 2015)
No ma i e
Manage ial
S akeholde managemen aming
and managemen issues
(An onini e al. 2020; Belal e al. 2015)
(Finau e al. 2018; Onkila e al. 2014)
Legi imacy Theo y P agma ic Rela ionships wi h hi d pa ies
and he communi y
Mo al Communica ion (Killian and O’Regan 2016; Mo ison and
Lowe 2021)
Cogni i e Logis ics and o he sys em
imp o emen s o sus ainabili y (Ja ed e al. 2021)
Ins i u ional
Theo y
Coe ci e
Mime ic
Regula ions and go e nmen s
Co po a e pe o mance
measu emen
(Cho and Gio dano-Sp ing 2015; Chung and
Cho 2018; T anﬁeld e al. 2003)
No ma i e Accoun ing bodies, p o essions,
and s anda ds
(Qian e al. 2021; F ase 2012; Qian e al. 2011)
O he s Socio-poli ical Employees, e o ms, egula ions,
and mixed subjec s (Biondi e al. 2020; Tanima e al. 2020)
3.2.3. Ins i u ional Theo y
The escala ing end in sus ainabili y epo ing as a esponse o economic p essu es
is a subjec o deba e. Hahn and Kühnen (2013) showed mixed empi ical ﬁndings ega d-
ing economic p essu e as a de e minan o SR. Howe e , hey also showed ha social
and cul u al p essu es may push o ganiza ions o adop SR. Acco dingly, o ganiza ions
ins i u ionalize speciﬁc sus ainabili y no ms, alues, and belie s in hei ope a ions. This in-
s i u ionaliza ion is o en cha ac e ized by isomo phism, encompassing coe ci e, mime ic,
and no ma i e isomo phism, leading o a homogeniza ion o o ganiza ional p ac ices
(DiMaggio and Powell 1983).
3.3. Me hodological App oaches in Quali a i e Sus ainabili y Repo ing Resea ch
Resea che s employ a ious quali a i e esea ch me hods in hei sus ainabili y s udies,
o en selec ing he app oach based on hei speci ic esea ch a eas
(C eswell and Po h 2017)
.
U ilizing Suddaby and G eenwood’s (2008) me hodological amewo k o examining
ins i u ional change, his e iew concen a es on h ee dis inc echniques: in e p e i e,
his o ical, and dialec ical echniques. The mul i a ia e me hodology was excluded om
conside a ion, as he e iew aimed o syn hesize and iden i y gaps speciﬁcally in quali a i e
me hodologies wi hin SR esea ch.
The in e p e i e app oach in ol es a de ailed examina ion o s akeholde s’ pe cep ions
and in e p e a ions o ins i u ional p ac ices and s uc u es (Suddaby and G eenwood 2008).
I seeks o unco e how and why s uc u al changes eme ge. This app oach employs con-
en analysis, case s udies, in es iga ion o documen s and websi es, a semio ic lens, and in-
e iews o shed ligh on he in en ion and p og ess o sus ainabili y epo ing, s akeholde s’
pe cep ion, s akeholde s’ aming, and SR’s pe o mance and ins i u ionaliza ion. The a i-
cles using his me hodology accoun ed o 75% (180) o he selec ed li e a u e, and he lead-
ing a icles using his me hodological amewo k a e (e.g., Boi al 2013; G ay 2014; Dilla d
and Pullman 2017; Tanima e al. 2020; Cucks on 2013;
Tweedie and Ma ino -Bennie 2015
).
The his o ical app oach conside s ins i u ions as ou comes o mul iple phenomena
inﬂuenced by many in e ac ing causes (B ennan and Me kl-Da ies 2014; Al Mahameed e al.
2020). This app oach aims o de e mine a ious s ages o change in o ganiza ions using
his o ical da a and phenomena o explain ins i u ional and o ganiza ional a angemen s.
This app oach is mainly based on documen analysis and seeks his o ical e idence o
13
J. Risk Financial Manag. 2024,17,68
ensions in cu en SR p ac ices. Many schola s (e.g., Albu e al. 2020; Khan and Ali 2023;
Khan 2014) used his me hodology in he selec ed li e a u e.
The dialec ical app oach adop s a c i ical pe spec i e, assuming ha o ganiza ions
a e o med by powe ela ions in socie y (Al-H ayba and on Albe i-Alh ayba 2018).
I del es in o he inﬂuence o powe dynamics on he o ma ion and e olu ion o ins i u-
ions. The a icles in he sample using his app oach deal wi h powe and poli ics, ca bon
accoun ing, clima e issues, and s akeholde managemen a imes o c isis (e.g., Albu e al.
2020; Belal e al. 2015; Bowen and Wi neben 2011). They accoun o 15% (36) o he sample.
O he wo ks can be classiﬁed as using mixed me hodologies.
4. Discussion
This s udy sough o o e an o e iew o he ex en o which sus ainabili y aspec s
a e in es iga ed wi hin a chosen body o quali a i e li e a u e. The heo e ical app oaches
used in sus ainabili y esea ch, he quali a i e esea ch me hods u ilized wi hin he li e -
a u e, and majo aspec s in his line o esea ch we e examined. In he ollowing sec ion,
we examine he ﬁndings and hei signiﬁcance.
4.1. Sus ainabili y Repo ing Aspec s
The e iew e eals ha among he h ee dimensions o sus ainabili y (en i onmen al,
social, and economic), he en i onmen al dimension is he mos ex ensi ely s udied in he
selec ed li e a u e. Topics wi hin he en i onmen al dimension include clima e change
and ca bon accoun ing (Boi al 2013), s akeholde inﬂuence in en i onmen al s anda d
se ing, wa e accoun ing and managemen , and biodi e si y go e nance and alua ion
(G ay 2006; Suddaby and G eenwood 2008). This heigh ened ocus is likely a esponse o
he inc easing u gency o add ess en i onmen al deg ada ion and align business p ac ices
wi h sus ainabili y goals. Con e sely, he social and economic dimensions ha e ecei ed
ela i ely less a en ion, al hough ecen s udies indica e a g owing end in hese a eas.
Fo ins ance, social aspec s explo ed in ecen li e a u e include communi y engagemen in
local en i onmen al policy making, esponsible in es men decisions, social isk assessmen
ela ed o he supply chain, and wo kplace communi y- ocused CSR disclosu e. Economic
aspec s include he ins i u ionaliza ion o ESG issues in in es men decisions, sus ainable
p oduc design, and he econcep ualiza ion o mul iple capi als (Ash a and Uddin 2015;
Ramya e al. 2020).
Addi ionally, he e iew shows ha a signiﬁcan po ion o he li e a u e (50%, 121)
iews sus ainabili y epo ing as a concep inco po a ing all h ee dimensions. Sus ainabil-
i y epo ing is iewed as a mul i ace ed ins umen o o ganiza ional managemen and
communica ion, se ing he dual pu poses o s akeholde engagemen and legi imiza ion.
This app oach aligns wi h he e ol ing expec a ions o s akeholde s who seek comp e-
hensi e insigh s in o o ganiza ional sus ainabili y p ac ices. Sus ainabili y epo ing is no
me ely a disclosu e ool bu is inc easingly ecognized as a s a egic ins umen o o ga-
niza ional managemen and communica ion. The in eg a ion o e hical conce ns u he
emphasizes he need o companies o showcase hei commi men o esponsible and
e hical business p ac ices (Jámbo and Zanócz 2023).
Recen s udies, pa icula ly hose published a e 2018, e eal a shi om an in-
s i u ional pe spec i e o a social–poli ical pa adigm. Con ex ualiza ion, pa icula ly in
eme ging economies, has become a p ominen end in SR esea ch. This shi unde sco es
SR’s global signiﬁcance and he impo ance o os e ing a sha ed unde s anding o he
subjec (Jou neaul e al. 2021). This shi indica es a b oade ecogni ion ha sus ainabili y
epo ing is no solely an ins i u ional p ac ice bu is deeply embedded in socie al and poli -
ical con ex s. Con ex ualiza ion eﬂec s a g owing awa eness o di e se global pe spec i es
and he need o nuanced, cul u ally ele an app oaches o sus ainabili y.
Howe e , ce ain a eas emain unde explo ed in ecen li e a u e. Indigenous people’s
igh s, despi e UN emphasis on his issue, ha e ecei ed limi ed a en ion, wi h only a single
a icle shedding ligh on his opic (P insloo and Ma oun 2020; Scandu a and Thomas 2023;
14
J. Risk Financial Manag. 2024,17,68
Richa d and Odendaal 2021). Mo eo e , he e is a equi emen o addi ional in es iga ion
in domains like employee heal h and sa e y measu es, p oduc esponsibili y, and gende
dynamics. Add essing hese gaps is c ucial o a mo e inclusi e and comp ehensi e
unde s anding o he social implica ions o sus ainabili y epo ing.
A deep di e in o hese ﬁndings highligh s bo h he p og ess and he exis ing gaps
in sus ainabili y epo ing esea ch. Emphasizing he holis ic na u e o sus ainabili y,
unde s anding con ex ual inﬂuences, and add essing unde explo ed a eas will con ibu e
o a mo e obus and impac ul sus ainabili y epo ing amewo k. Resea che s and
p ac i ione s can use hese insigh s o guide u u e s udies, ensu ing ha sus ainabili y
epo ing con inues o e ol e in andem wi h global challenges and socie al expec a ions.
4.2. Theo ies in Selec ed Li e a u e
This e iew iden iﬁed he p e alen heo ies used in explo ing a ious aspec s o
sus ainabili y epo ing (SR). The e a e wo majo heo ies used in he selec ed wo ks:
s akeholde heo y (ST) and legi imacy heo y (LT), which a e used as undamen al heo ies
in quali a i e SR esea ch.
App oxima ely 33% (81) o he selec ed a icles employed ST as a p ima y heo e ical
amewo k o hei empi ical in es iga ions. ST is applied o elucida e how o ganiza ions
pe cei e and in e ac wi h di e se s akeholde g oups. The li e a u e iden iﬁes a wide
a ay o s akeholde g oups, including social ac i is s, employees, ulne able socie ies,
in es o s, supplie s, and indigenous people. Fo ins ance, He emans and Naza i (2016),
Belal e al. (2015), and Del Baldo (2017) aised ques ions abou how wo ld ade should
emb ace en i onmen al esponsibili y, emphasizing he ole o ulne able socie ies. Khan
and Ali (2023), E in e al. (2022), and Es eban-A ea and Ga cia-To ea (2022) ocused
on in o ma ion disclosu e abou employees’ igh s. Finau e al. (2018) iew s akeholde
ela ionships as ne wo k pe iphe als, highligh ing s akeholde s’ e o s o gain powe
wi hin o ganiza ions. The ﬁndings sugges ha sus ainabili y epo ing is conside ed a ool
o communica ing sus ainabili y p ac ices o s akeholde s, aligning wi h i s ins umen al
aspec . The ﬁndings also acknowledge he complex and dynamic na u e o o ganiza ion–
s akeholde in e ac ions, esona ing wi h sus ainabili y epo ing.
Legi imacy heo y is widely used in he li e a u e. Among s udies using LT, he p ag-
ma ic aspec is mos p e alen , accoun ing o 87%. The p agma ic pe spec i e in e p e s
ac ions aken by o ganiza ions o add ess immedia e s akeholde s. F ase (2012) and Killian
and O’Regan (2016) desc ibe social accoun ing as a p agma ic legi imacy p ac ice employed
by o ganiza ions o ebuild ela ionships wi h hei communi ies.
In summa y, ST and LT a e p ominen heo e ical amewo ks employed in he se-
lec ed li e a u e o explo e a ious ace s and ensions o SR. ST emphasizes s akeholde
in e ac ions and ela ionships, while LT ocuses on o ganiza ional e o s o main ain legi i-
macy h ough SR p ac ices. These heo ies p o ide aluable insigh s, con ibu ing o ou
unde s anding o how o ganiza ions pe cei e and espond o sus ainabili y challenges and
s akeholde expec a ions.
This e iew also unco e s he usage o a ious aspec s o he majo heo ies in he se-
lec ed li e a u e, shedding ligh on how he s uc u es and p ac ices o o ganiza ions change
acco ding o di e en p essu es and inﬂuences. These aspec s include mo al legi imacy,
ins i u ional heo y (IT), and o he c i ical and in e disciplina y pe spec i es.
Mo al legi imacy sugges s ha o ganiza ions unde ake ac ions deemed e hically
sound. Despi e i s alignmen wi h he co e pu pose o sus ainabili y epo ing (SR), his
ace has ecei ed limi ed a en ion in quali a i e sus ainabili y esea ch. This e iew o
exis ing li e a u e unde sco es he signiﬁcance o mo al legi imacy as an unde de eloped
dimension wi hin he ealm o sus ainabili y epo ing. Ins i u ional heo y, speciﬁcally
coe ci e, mime ic, and no ma i e p essu es, plays a signiﬁcan ole in shaping o ganiza-
ional p ac ices ela ed o SR. Coe ci e p essu es a ise om egula o y sou ces, bo h o mal
and in o mal, and encompass in e nal and ex e nal ac o s o an o ganiza ion. This e iew
also shows ha c ises, whe he ins iga ed by human ac ions o na u al e en s, can im-
15
J. Risk Financial Manag. 2024,17,68
Tanima, Fa zana A., Judy B own, and Jesse Dilla d. 2020. Su acing he poli ical: Women’s empowe men , mic oﬁnance, c i ical
dialogic accoun ing and accoun abili y. Accoun ing, O ganiza ions and Socie y 85: 101–41. [C ossRe ]
Ta quinio, La a, and Chia a Xhindole. 2022. The ins i u ionalisa ion o sus ainabili y epo ing in managemen p ac ice: E idence
h ough ac ion esea ch. Sus ainabili y Accoun ing, Managemen and Policy Jou nal 13: 362–86. [C ossRe ]
T anﬁeld, Da id, Da id Denye , and Palminde Sma . 2003. Towa ds a me hodology o de eloping e idence-in o med managemen
knowledge by means o sys ema ic e iew. B i ish Jou nal o Managemen 14: 207–22. [C ossRe ]
T axle , Albe A., Daniela Sch ack, and Do o hea G eiling. 2020. Sus ainabili y epo ing and managemen con ol–a sys ema ic
explo a o y li e a u e e iew. Jou nal o Cleane P oduc ion 276: 122. [C ossRe ]
T egidga, Helen. 2013. Biodi e si y o se ing: P oblema isa ion o an eme ging go e nance egime. Accoun ing, Audi ing and
Accoun abili y Jou nal 26: 806–32. [C ossRe ]
Tweedie, Dale, and Nonna Ma ino -Bennie. 2015. En i lemen s and ime: In eg a ed epo ing’s double-edged agenda. Social and
En i onmen al Accoun abili y Jou nal 35: 49–46. [C ossRe ]
Une man, Je ey, and Ma c Benne . 2004. Inc eased s akeholde dialogue and he in e ne : Towa ds g ea e co po a e accoun abili y
o ein o cing capi alis hegemony? Accoun ing, O ganiza ions and Socie y 29: 685–707. [C ossRe ]
Williams, Sa ah J., and Ca ol A. Adams. 2013. Mo al accoun ing? Employee disclosu es om a s akeholde accoun abili y pe spec i e.
Accoun ing, Audi ing and Accoun abili y Jou nal 26: 449–95. [C ossRe ]
Disclaime /Publishe ’s No e:
The s a emen s, opinions and da a con ained in all publica ions a e solely hose o he indi idual
au ho (s) and con ibu o (s) and no o MDPI and/o he edi o (s). MDPI and/o he edi o (s) disclaim esponsibili y o any inju y o
people o p ope y esul ing om any ideas, me hods, ins uc ions o p oduc s e e ed o in he con en .
22

Ci a ion: La Soa, Nguyen, Do Duc
Duy, T an Thi Thanh Hang, and
Nguyen Dieu Ha. 2024. The Impac
o En i onmen al Accoun ing
In o ma ion Disclosu e on Financial
Risk: The Case o Lis ed Companies
in he Vie nam S ock Ma ke . Jou nal
o Risk and Financial Managemen 17:
62. h ps://doi.o g/10.3390/
j m17020062
Academic Edi o : ¸S e an
C is ian Ghe ghina
Recei ed: 29 Decembe 2023
Re ised: 20 Janua y 2024
Accep ed: 31 Janua y 2024
Published: 6 Feb ua y 2024
Copy igh : © 2024 by he au ho s.
Licensee MDPI, Basel, Swi ze land.
This a icle is an open access a icle
dis ibu ed unde he e ms and
condi ions o he C ea i e Commons
A ibu ion (CC BY) license (h ps://
c ea i ecommons.o g/licenses/by/
4.0/).
Jou nal o
Risk and Financial
Managemen
A icle
The Impac o En i onmen al Accoun ing In o ma ion
Disclosu e on Financial Risk: The Case o Lis ed Companies
in he Vie nam S ock Ma ke
Nguyen La Soa *, Do Duc Duy, T an Thi Thanh Hang and Nguyen Dieu Ha
School o Accoun ing and Audi ing, Na ional Economics Uni e si y, Hanoi 100000, Vie nam;
[email p o ec ed] (D.D.D.); [email p o ec ed] (T.T.T.H.);
[email p o ec ed] (N.D.H.)
*Co espondence: [email p o ec ed]
Abs ac :
This esea ch s udy aims o assess he impac o en i onmen al accoun ing in o ma ion
disclosu e on ﬁnancial isk wi hin he con ex o Vie nam’s s ock ma ke . The da a collec ion p o-
cess in ol ed 60 non-ﬁnancial companies, ca e ully selec ed om bo h he pool o 100 Sus ainable
Companies lis ed in he “P og amme on Benchma king and Announcing Sus ainable Companies in
Vie nam (CSI)”, as o ganized by VBCSD, and companies ou side his lis . The da a span a ime ame
om 2018 o 2022. A e wa d, we u ilize eg ession models o assess ela ionships and employ
he - es o e alua e di e ences. The esul s indica e ha en i onmen al accoun ing in o ma ion
disclosu e has an in e se e ec on he ﬁnancial isk o he cu en yea and he ollowing yea . This
implies ha companies ha a e mo e anspa en and p oac i e in epo ing hei en i onmen al
pe o mance a e likely o expe ience dec eased ﬁnancial isk. Fu he mo e, he esul s also show
di e ences in ﬁnancial isk be ween he g oup o companies wi hin he “100 Sus ainable Companies”
lis and he g oup o companies ou side his lis . This dispa i y unde sco es he po en ial ﬁnancial
beneﬁ s o being ecognized as a sus ainable company. Based on he ﬁndings, he esea ch eam has
p o ided se e al ecommenda ions o enhance en i onmen al accoun ing in o ma ion disclosu e
and awa eness.
Keywo ds:
en i onmen al accoun ing; en i onmen al accoun ing in o ma ion disclosu e; ﬁnancial
isk; sus ainable companies; CSI
1. In oduc ion
In ecen yea s, issues ela ed o sus ainable de elopmen , economic de elopmen in
pa allel wi h social p og ess, and ensu ing en i onmen al sus ainabili y ha e become sig-
niﬁcan global conce ns. In his con ex , en i onmen al accoun ing has eme ged o suppo
businesses in ulﬁlling hei en i onmen al esponsibili ies du ing hei p oduc ion and
ope a ions. Essen ially, en i onmen al accoun ing seeks and p o ides essen ial in o ma ion
on en i onmen al- ela ed issues, aiming o enhance he accoun abili y o businesses in
hei use o esou ces. In addi ion, en i onmen al accoun ing is also a pa o accoun ing
aimed a eco ding, analyzing, and epo ing in o ma ion abou a company’s impac s on
he en i onmen .
In o ma ion disclosu e has become an indispensable pa o public companies, as s ake-
holde s use i o assess he business’s pe o mance. Al hough he e is no uniﬁed deﬁni ion
o en i onmen al accoun ing, acco ding o he In e na ional Fede a ion o Accoun an s
(IFAC), en i onmen al accoun ing is a b oad e m wi h many implica ions, such as as-
sessing and disclosing en i onmen al in o ma ion combined wi h ﬁnancial in o ma ion in
accoun ing and ﬁnancial epo ing. F om his, i can be seen ha en i onmen al accoun ing
disclosu e includes, ﬁ s , gene al en i onmen al in o ma ion: p esen ing en i onmen al
J. Risk Financial Manag. 2024,17, 62. h ps://doi.o g/10.3390/j m17020062 h ps://www.mdpi.com/jou nal/j m
J. Risk Financial Manag. 2024,17,62
policies, desc ibing en i onmen al issues he company may ace, imp o emen s he com-
pany has implemen ed, and he le el o compliance wi h legally manda ed p o ec i e
measu es; second, en i onmen al accoun ing in o ma ion: displaying business ac i i ies
ela ed o he en i onmen such as asse s, cos s, liabili ies, and en i onmen al income in
accoun ing epo s such as ﬁnancial s a emen s and annual epo s o in o ma ion use s,
p o iding a basis o making ele an decisions. This will allow companies o alloca e
economic esou ces mo e easonably in line wi h he en i onmen o p o ide mo i a ion
o help he business achie e sus ainable de elopmen goals. Vie nam is in a pe iod o
in e na ional economic in eg a ion, he disclosu e o en i onmen al accoun ing in o ma-
ion and non-ﬁnancial in o ma ion is also a end ha Vie nam needs o emb ace quickly.
Howe e , in p ac ice, no many companies can p o ide a comp ehensi e se o en i on-
men al in o ma ion o s akeholde s (Linh 2013). When in o ma ion o s akeholde s is no
adequa ely p o ided, i can pose isks o he company, such as educing oppo uni ies
o collabo a ion and issues ela ed o en i onmen al legal compliance. Financial isks
a e isks a ising om ex e nal en i onmen al ﬂuc ua ions and isks s emming om he
choices and implemen a ion o ﬁnancial decisions wi hin a business. These isks impac
he p oﬁ -making capabili y and sol ency o he business, wi h he wo s -case scena io
leading o he possibili y o business bank up cy. Pham and Duong (2022) conduc ed a
s udy on he impac o disclosing in o ma ion abou en i onmen al impac s on he ﬁnancial
pe o mance o lis ed companies in Vie nam du ing he pe iod 2016–2020. The esea ch
esul s showed ha he ex en o disclosing in o ma ion abou en i onmen al impac s has
a posi i e e ec on he ﬁnancial pe o mance o companies. This is because he disclosu e
o en i onmen al accoun ing in o ma ion helps he business s eng hen he us o a ious
s akeholde s. The e o e, he lack o his in o ma ion can ha e a nega i e impac on ﬁnan-
cial isk managemen wi hin he company. So, i can be obse ed ha he e is a linkage
be ween he disclosu e o en i onmen al accoun ing in o ma ion and ﬁnancial isks wi hin
a company. The e o e, he au ho s ha e chosen he opic “The Impac o En i onmen al
Accoun ing In o ma ion Disclosu e on Financial Risk: The Case o Lis ed Companies in he
Vie nam S ock Ma ke ” o esea ch. We pa icula ly ocus on companies pa icipa ing in
he “P og amme on Benchma king and Announcing Sus ainable Companies in Vie nam
(CSI)”. The esea ch ques ions encompass how he disclosu e o en i onmen al accoun ing
in o ma ion a ec s he ﬁnancial isk o businesses; and whe he he e is a di e ence in
ﬁnancial isk be ween he g oup o companies lis ed in he Top 100 Sus ainable Companies
and he g oup ou side his lis . A e he esea ch p ocess, he main ﬁndings indica e
ha disclosing en i onmen al accoun ing in o ma ion helps mi iga e he ﬁnancial isks o
businesses in he cu en yea and he ollowing yea . Addi ionally, companies lis ed in he
Top 100 Sus ainable Companies ha e, on a e age, lowe ﬁnancial isks compa ed o hose
ou side he lis . F om hese ﬁndings, he au ho s p opose se e al ecommenda ions aimed
a assis ing businesses in enhancing he quali y o en i onmen al accoun ing in o ma ion
disclosu e and minimizing ﬁnancial isks.
This esea ch aspi es o make con ibu ions o he heo e ical unde s anding o social
esponsibili y in o ma ion disclosu e and he ﬁnancial pe o mance o businesses. This
s udy could se e as a ounda ion o u u e in-dep h esea ch on en i onmen al accoun ing
and social esponsibili y, as well as ela ed issues. Mo eo e , his esea ch holds p ac ical
signiﬁcance in explo ing he ela ionship be ween en i onmen al issues and he ﬁnan-
cial pe o mance o businesses, p o iding aluable insigh s o manage s in de eloping
en e p ises in an e a ocused on g een and sus ainable de elopmen .
This s udy aims o achie e he ollowing speciﬁc objec i es: ﬁ s ly, examine he ac o s
inﬂuencing ﬁnancial isks; secondly, in es iga e how en i onmen al accoun ing in o -
ma ion disclosu e a ec s ﬁnancial isks, posi i ely o nega i ely, in he cu en yea o
non-ﬁnancial companies lis ed on he Vie nam S ock Ma ke ; hi dly, explo e he ela ion-
ship be ween en i onmen al accoun ing in o ma ion disclosu e and he ﬁnancial isks o
companies in he ollowing yea ; ou hly, s udy he di e ences in ﬁnancial isks among
companies implemen ing en i onmen al accoun ing in o ma ion disclosu e wi hin di e -
24
J. Risk Financial Manag. 2024,17,62
en a ge g oups as ca ego ized by he esea ch eam; ﬁ hly, p o ide ecommenda ions
o imp o e ﬁnancial isks, ﬁnancial isk managemen , and he quali y o en i onmen al
accoun ing in o ma ion disclosu e o companies.
To add ess hese objec i es, he esea ch eam has designed esea ch ques ions o
ﬁnd answe s o: Ques ion 1: Wha ac o s inﬂuence ﬁnancial isk? Ques ion 2: How does
en i onmen al accoun ing in o ma ion disclosu e impac ﬁnancial isk in he cu en yea ?
Ques ion 3: How does en i onmen al accoun ing in o ma ion disclosu e a ec ﬁnancial isk
in he ollowing yea ? Ques ion 4: A e he e di e ences in ﬁnancial isk be ween he g oup
o companies ecognized as “Sus ainable En e p ises in Vie nam” and he emaining g oup
o companies? Ques ion 5: Wha ecommenda ions should be made o help companies
imp o e ﬁnancial isks, ﬁnancial isk managemen , and he quali y o en i onmen al
accoun ing in o ma ion disclosu e?
2. Li e a u e Re iew and Theo e ical F amewo k
2.1. Li e a u e Re iew
En i onmen al accoun ing has ga ne ed signiﬁcan a en ion om bo h academia
and business p ac i ione s in de eloped na ions. O ﬁcial guidelines on en i onmen al
accoun ing we e es ablished by he Uni ed Na ions Sus ainable De elopmen Commission
(UNDSD) in 2001 and he In e na ional Fede a ion o Accoun an s (IFAC) in 2005. Despi e
his, esea ch in en i onmen al accoun ing da es back o he 1970s, wi h a su ge in s udies
and li e a u e eme ging in he 1990s. The pe iod om 1997 o he p esen is pa icula ly
no able o a boom in en i onmen al accoun ing esea ch, co e ing heo e ical aspec s,
accoun ing p ac ices, and he impac o en i onmen al accoun ing and social esponsibili y
on ﬁnancial isks. This ﬁeld has become a ocal poin o scien iﬁc inqui y, a ac ing
inc easing in e es om esea che s.
Rega ding he examina ion o he impac o en i onmen al accoun ing disclosu e in
gene al and social esponsibili y on co po a e isk, p e ious s udies ha e p edominan ly
iden iﬁed an in e se ela ionship be ween he disclosu e o en i onmen al and social
in o ma ion and co po a e isk (Liu and Lu 2021; E iandani and Wijaya 2021; Cai e al. 2016;
Jo and Na 2012; Mino and Mo gan 2011; Luo and Bha acha ya 2009; God ey e al. 2009;
O li zky and Benjamin 2001).
The s udy by Liu and Lu (2021) ocused on all publicly aded companies in S anda d
and Poo ’s Compus a om 2004 o 2012, sco ing social esponsibili y disclosu e in aspec s
such as he en i onmen , communi y, and co po a e go e nance. The esea ch esul s
showed ha companies wi h highe disclosu e sco es had signiﬁcan ly lowe co po a e
isk. Addi ionally, he esul s implied ha social esponsibili y disclosu e pa ly educes
isk h ough he company’s epu a ion.
The s udy by E iandani and Wijaya (2021) sampled lis ed companies on he Indonesia
S ock Exchange ha disclosed social esponsibili y in o ma ion om 2016 o 2019. I demon-
s a ed ha disclosu e ac i i ies had an in e se ela ionship wi h co po a e isk, as such
ac i i ies could build epu a ion and enable e ec i e esou ce managemen . Companies
could minimize isk by disclosing social esponsibili y in o ma ion as a way o demons a e
a balance be ween economic, social, and en i onmen al aspec s.
The s udy by Cai e al. (2016) examined he ela ionship be ween en i onmen al
esponsibili y and a company’s isk. To es hypo heses ela ed o isk educ ion, esou ce
cons ain s, and indus y a ia ions, he au ho s collec ed a sample comp ising 1947 la ge
U.S. companies om he pe iod be ween 2003 and 2015 by combining a ious da ase s.
The esea ch esul s indica ed ha companies wi h en i onmen al esponsibili y may ace
lowe isks.
The discussion on s udies examining he impac o en i onmen al accoun ing disclo-
su e in gene al and social esponsibili y on he isk o bank up cy o ﬁnancial dis ess is
signiﬁcan . Do (2022) conduc ed a s udy o explo e he ela ionship be ween co po a e
social esponsibili y and bank up cy isk, wi h a ocus on condi ional e ec s o e di e en
ime pe iods. The esul s e ealed an in e se ela ionship be ween social esponsibili y and
25
J. Risk Financial Manag. 2024,17,62
bank up cy isk. Fu he mo e, he long- e m impac o social esponsibili y was s onge
han he sho - e m e ec .
Boubake e al. (2020) in es iga ed how co po a e social esponsibili y a ec s he le el
o ﬁnancial dis ess isk. The s udy sample consis ed o 1201 publicly lis ed companies in
he Uni ed S a es om 1991 o 2012. The esea ch esul s indica ed ha companies wi h
high-quali y social esponsibili y ha e lowe le els o ﬁnancial dis ess isk and a be e
abili y o access ﬁnancial esou ces, aligned wi h he conclusion, he di e si y o communi y,
employee ela ionships, and en i onmen al aspec s o co po a e social esponsibili y helps
educe ﬁnancial dis ess isk o businesses (A ig e al. 2013).
The s udy by Coope and Uzun (2019) u ilized a sample comp ising 78 companies
ha ﬁled o bank up cy du ing he pe iod om 2007 o 2014 and a co esponding g oup
o companies ha did no . O e all, he esul s indica ed ha companies wi h highe le els
o social esponsibili y disclosu e a e less likely o ace bank up cy compa ed o companies
wi h lowe disclosu e le els.
The esea ch conduc ed by Lin and Dong (2018) aimed o add ess he ques ion o
whe he he ﬁnancial dis ess o companies could be mi iga ed h ough a commi men o
social esponsibili y. The s udy’s ﬁndings demons a ed ha companies wi h a posi i e
his o y o engaging in social esponsibili y we e less likely o ﬁle o bank up cy when
acing ﬁnancial di ﬁcul ies and we e mo e likely o eco e quickly a e a c isis.
Addi ionally, some s udies ha e highligh ed an in e se ela ionship be ween social
esponsibili y and sys emic isk by inc easing he disclosu e o social esponsibili y, which
helps enhance ﬁnancial e ﬁciency and educe capi al cos s (El Ghoul e al. 2011; Oikonomou
e al. 2012).
Ding e al. (2022) in es iga ed he ole o en i onmen al in o ma ion disclosu e
in ela ion o bo owing cos s. This s udy ocused on manu ac u ing companies ha
had been penalized by he Chinese go e nmen o iola ing en i onmen al ules and
egula ions. Based on he esul s, he au ho s ound ha egula o y penal ies signiﬁcan ly
inc eased a company’s bo owing cos s in he ollowing yea h ough he ad e se impac
o en i onmen al in o ma ion disclosu e.
The s udy by Albuque que e al. (2019) p esen ed an indus y equilib ium model
in which companies ha e he choice o engage in social esponsibili y ac i i ies as an
in es men o enhance p oduc di e en ia ion, allowing hem o beneﬁ om highe p oﬁ
ma gins. The esea ch aims o cap u e he social, en i onmen al, and co po a e go e nance
ac o s ela ed o a company’s ope a ions, ﬁnancial pe o mance, and isk managemen .
The esea ch esul s indica e ha social esponsibili y ac i i ies a ec a company’s sys emic
isk. Companies ha disclose in o ma ion on social esponsibili y will ha e lowe capi al
cos s, and in es o s including hese companies’ s ocks in hei in es men po olios will
help educe he o e all po olio isk.
Du a and Nezlobin (2017) used da a om companies in he S&P 500 o conﬁ m ha
social esponsibili y has an in e se impac on sys emic isk, which includes ma ke isk.
The s udy also indica ed ha companies wi h highe social esponsibili y end o ha e
lowe capi al cos s. The esea ch esul s u he e ealed ha , all else being equal, cu en
sha eholde s p e e maximum in o ma ion disclosu e, and he u u e beneﬁ s o sha ehold-
e s will inc ease (dec ease) depending on he accu acy o he disclosed in o ma ion i he
company’s g ow h a e is abo e (below) a ce ain h eshold.
Resea ch on he impac o en i onmen al accoun ing and en i onmen al in o ma ion
disclosu e has gained popula i y in de eloped coun ies whe e he ela ionship be ween
business ac i i ies and he en i onmen has been ecognized o an ex ended pe iod. En-
i onmen al accoun ing is ela i ely new in Vie nam and p ima ily ollows he gene al
p o isions o Ci cula 96/2020/TT-BTC o he Global Repo ing Ini ia i e (GRI) amewo k
o implemen a ion. In Vie nam, s udies on co po a e social esponsibili y and en i onmen-
al accoun ing ha e only been conduc ed in ecen yea s and ha e no been signiﬁcan ly
p ac ical. A ew ecen s udies in his con ex include (Nguyen 2020, 2022; Nguyen e al.
2022, 2023; Anh-Tuan e al. 2022). In gene al, esea ch in his ﬁeld in Vie nam is no ye
26
J. Risk Financial Manag. 2024,17,62
di e se ac oss a ious aspec s and has no del ed deeply in o speciﬁc ela ionships. Ad-
di ionally, he esul s o hese s udies may di e due o di e en na ional con ex s and
a ious ime pe iods. The e o e, ou esea ch eam emba ks on his s udy wi h he in en ion
o in es iga ing and collec ing in o ma ion o ﬁll he gaps in his ﬁeld in Vie nam.
2.2. Theo e ical Backg ound
To assess he le el o en i onmen al accoun ing in o ma ion disclosu e and i s ela-
ionship wi h ﬁnancial isk, we u ilize he ollowing heo ies:
The heo y o legi imacy posi s ha o ganiza ions mus align hei ac i i ies wi h
socie al alues and s anda ds. Failu e o adhe e o hese social alues and s anda ds
can lead o di ﬁcul ies in gaining communi y suppo o hei con inued ope a ion. The
heo y o legi imacy o igina es om he esea ch on legi imacy in poli ics by he Ge man
economis and sociologis Webe (1922) in his wo k “Concep s in Sociology”. Gi en he
inc easing socie al conce n abou he en i onmen , he public expec s ha o ganiza ions
will exhibi esponsible and en i onmen ally- iendly beha io . Failing o mee hese
socie al expec a ions and demands could esul in sanc ions, such as he e oca ion o
licenses, which can ha e long- e m implica ions o he su i al o he business (Deegan
2002). This heo y explains he mo i a ion behind using en i onmen al accoun ing as
a ool o ulﬁll social esponsibili y and ensu e legal compliance. The e o e, he clea e
he disclosu e o en i onmen al accoun ing in o ma ion, he mo e i minimizes legal and
e hical issues, educing ﬁnancial isks.
Since i s in oduc ion, Resou ce Dependency Theo y has become one o he mos
inﬂuen ial heo ies in o ganiza ional and s a egic managemen . This heo y eme ged
om he idea o o ganiza ions’ ulne abili y o hei ex e nal en i onmen (P e e and
Salancik 1978). This heo y asse s ha o ganiza ions mus ecognize and iden i y he
socie al g oups upon which hey depend. They mus hen manage and align hei ac ions
and beha io s wi h he needs o hese ex e nal socie al g oups o educe he isks and
po en ial eac ions om hem. Bha acha yya (2016) applied his heo y o examine he
ex en o en i onmen al in o ma ion disclosu e. Acco ding o his amewo k, businesses
need o secu e suppo and consensus om socie y, especially om he en i ies ha p o ide
he p ima y esou ces o he o ganiza ion. The e o e, disclosing en i onmen al accoun ing
in o ma ion becomes a necessa y and app op ia e ac ion aligned wi h socie al demands,
educing he isks associa ed wi h ex e nal socie al eac ions and minimizing ﬁnancial isks
o he company.
The s akeholde heo y o igina ed om F eeman’s (1984) esea ch on o ganiza ional
managemen and business e hics. This heo y asse s ha o ganiza ions ha e an obliga ion
o ea hei s akeholde s ai ly. The concep o accoun abili y (in o ma ion disclosu e)
equi es businesses o be esponsible o hei ac i i ies. The esponsibili y o accoun o ac-
ions o s akeholde s ex ends beyond ha o accoun abili y o sha eholde s. As he success
o businesses depends on how hey balance he di e se needs o s akeholde s, en e p ises
need o espond and accoun o s akeholde s. F eeman and Lied ka (1997) iden iﬁed h ee
easons o accoun abili y o s akeholde s: (i) in e es -based accoun abili y; (ii) igh s-based
accoun abili y; (iii) obliga ion-based accoun abili y. Ullmann (1985) de eloped a concep ual
model o co po a e social esponsibili y. Ullmann concluded ha he s akeholde heo y
p o ides a sui able amewo k o in eg a ing s a egic decisions in o he examina ion o
co po a e social esponsibili y ac i i ies. Manini e al. (2016) used his heo y o analyze
he co ela ion be ween ﬁnancial s uc u e, company p oﬁ abili y, audi ﬁ m ype, liquidi y,
he numbe o yea s in business, and en i onmen al in o ma ion disclosu e. A company’s
ope a ions ha e an impac on bo h in e nal and ex e nal s akeholde s. This heo y is em-
ployed o explain why companies olun a ily adop en i onmen al accoun ing in o ma ion
disclosu e o mee he inc easing demand o en i onmen al da a om a ious s akehold-
e s, including go e nmen agencies, c edi o ganiza ions, in es o s, consume s, and he
communi y. Con e sely, he lack o anspa en disclosu e o en i onmen al accoun ing
in o ma ion can lead o speciﬁc ﬁnancial isks o he company.
27

J. Risk Financial Manag. 2024,17,62
2.3. Resea ch Hypo heses
2.3.1. The Rela ionship be ween he Le el o En i onmen al Accoun ing In o ma ion
Disclosu e and Financial Risk
Elias (2004) a gues ha businesses a e acing inc easing p essu e om s akeholde s o
es ablish e hics and anspa en in o ma ion sys ems. Today’s ma ke economy demands
ha companies no only sell p oduc s and se ices bu also c ea e alue and ulﬁll co po a e
social esponsibili y (CSR) owa ds he public. Rega ding he ela ionship be ween CSR
and business isks, a ious s udies ha e ound e idence suppo ing he beneﬁcial impac o
engaging in CSR on business isks om di e en pe spec i es (Cheung 2016; Albuque que
e al. 2019). Companies wi h highe CSR e ec i eness end o be pe cei ed as less isky
by in es o s. Acco ding o he s akeholde heo y, o a business o sus ain and h i e, i
needs o balance he in e es s o a ious s akeholde s, such as sha eholde s, employees,
and cus ome s (F eeman 1984; Mish a and Modi 2013). CSR ac i i ies can help companies
mi iga e he isk o losing suppo om one o mo e s akeholde s, enhancing he epu a ion
o hese companies. S ong ela ionships wi h s akeholde s can imp o e he abili y o
educe isk by educing ma ke unce ain y, hus elimina ing o mi iga ing any dis up ions,
losses, o damages o a company’s p oﬁ s and minimizing he impac o un o eseen e en s
(Ky le and Ruggie 2005).
Wi h e o s o imp o e he ﬁnancial ma ke in Vie nam, he disclosu e o in o ma ion
ela ed o social esponsibili y is g adually becoming a nea -obliga o y elemen in annual
epo s, as emphasized in Ci cula 96/2020/TT-BTC, a ﬁ ming he conce n o s akeholde s
on his ma e . The e o e, i can be seen ha he disclosu e o en i onmen al accoun ing
in o ma ion has an impac on he ﬁnancial isks o companies, hence he esea ch hypo hesis
(H1) is o mula ed as ollows:
H1a.
The le el o en i onmen al accoun ing in o ma ion disclosu e has an in e se e ec on he
ﬁnancial isk o he company in he cu en yea .
H1b.
The le el o en i onmen al accoun ing in o ma ion disclosu e has an in e se e ec on he
ﬁnancial isk o he company in he ollowing yea .
2.3.2. Assessing he Di e ences in Financial Risk be ween Lis ed Companies Included in
he Lis o he Top 100 Sus ainable Companies in Vie nam and Those No on This Lis
Acco ding o he s akeholde heo y, businesses should add ess he in e es s o all
s akeholde s a he han jus hei own. F eeman (1984) no ed ha when he e is consensus
among s akeholde s, in e es s a e enhanced, and coope a ion is p omo ed. The e o e, many
businesses ha e adop ed a ious s a egies o encou age consensus among s akeholde s.
In Vie nam, o enhance he us and sa is ac ion o s akeholde s, many companies ha e
chosen o pa icipa e in he “P og amme on Benchma king and Announcing Sus ainable
Companies in Vie nam (CSI)”. The CSI p og am helps aise awa eness among businesses
and socie y abou he impo ance and beneﬁ s o sus ainable de elopmen in he new
con ex , as well as encou ages businesses o engage in sus ainable business p ac ices
and sus ainable co po a e managemen . Simul aneously, his ecogni ion also p o ides
businesses wi h he oppo uni y o enhance hei epu a ion, b and, and a ac human
esou ces. I opens doo s o new business oppo uni ies by inc easing he us o pa ne s,
in es o s, and sha eholde s. I con ibu es o he de elopmen o sus ainable business,
he eby imp o ing he compe i i e capabili ies o businesses in he cu en in e na ional
economic in eg a ion con ex .
Wi h hese posi i e impac s, when ecognized among he op 100 companies in he
CSI p og am, he ﬁnancial isks o hese companies a e likely o be signiﬁcan ly educed.
The e o e, he esea ch g oup o mula es hypo hesis (H2) as ollows:
28
J. Risk Financial Manag. 2024,17,62
H2.
The e is a di e ence in ﬁnancial isk be ween companies lis ed in he op 100 Sus ainable
Companies in Vie nam and companies no included in his lis .
3. Resea ch Me hodology
3.1. Da a Collec ion
G oup 1: Lis ed companies mee ing wo c i e ia: (i) Ha e published ﬁnancial epo s
and annual epo s (o sus ainabili y epo s) om 2018 o 2022, and (ii) a e included in
he lis o he op 100 Sus ainable Companies in he “P og amme on Benchma king and
Announcing Sus ainable Companies in Vie nam (CSI)” o a leas 3 ou o 5 yea s om
2018 o 2022.
G oup 2: Lis ed companies no included in he lis o he op 100 Sus ainable Compa-
nies om 2018 o 2022 bu mee ing wo c i e ia: (i) Ha e published ﬁnancial epo s and
annual epo s (o sus ainabili y epo s) om 2018 o 2022, and (ii) ha e business size and
sec o co esponding o G oup 1.
A e sc eening he lis o 100 Sus ainable Companies o e he cou se o 5 yea s, only
a o al o 30 companies mee he c i e ia o G oup 1. Nex , 30 sui able companies o
G oup 2
companies a e selec ed (bo h in e ms o quan i y and quali y, ma ching hose o
G oup 1). The sample comp ises 300 obse a ions, in line wi h he condi ions o analysis
(Tauchen 1986; Hai e al. 2011). The ﬁnal esea ch sample is p esen ed in Table 1.
Table 1. Sample alloca ion by indus y.
Indus y Numbe o Companies Obse a ions
Manu ac u ing 42 210
U ili ies 8 40
Cons uc ion and Real Es a e 6 30
T anspo a ion and Wa ehousing 2 10
Wholesale 2 10
To al 60 300
3.2. Va iable Measu emen s
3.2.1. Dependen Va iable: Financial Risk (FR)
In his s udy, he ﬁnancial isk measu emen model de eloped by Alexande Ba ho y
(Ba ho y 1984) is u ilized. The o mula is as ollows:
FRi = SZLi +SY
i +GL
i +YF
i +YZ
i (1)
whe e
SZLi = (p oﬁ be o e ax + dep ecia ion + de e ed ax)/cu en liabili ies.
SYi = p e- ax p oﬁ /ope a ing capi al.
GLi = sha eholde s’ in e es s/cu en liabili ies.
YFi = ne angible asse s/ o al liabili ies.
YZi = wo king capi al/ o al asse s.
Ba ho y’s model sugges s ha a highe alue o FRi indica es lowe ﬁnancial isk,
and ice e sa.
3.2.2. Independen Va iable: The Le el o En i onmen al Accoun ing Disclosu e (ENVI)
We calcula e he a iable ENVI based on he 2016 GRI (Global Repo ing Ini ia i e
(GRI) 2016) Sus ainabili y Repo ing S anda ds, speciﬁcally wi h he en i onmen al c i e ia
(GRI 300) as p esen ed in Table 2.
29
J. Risk Financial Manag. 2024,17,62
Table 2. En i onmen al i ems.
No. Field Numbe o I ems Re e encing o GRI
1 Ma e ials 4 301
2 Ene gy 6 302
3 Wa e 4 303
4 Biodi e si y 5 304
5 Emissions 8 305
6 E ﬂuen s and Was e 6 306
7 En i onmen al Compliance 2 307
8 Supplie En i onmen al Assessmen 3 308
Each i em is sco ed depending on he le el o en i onmen al accoun ing disclosu e in
he annual epo (o sus ainabili y epo ) o he company. The sco ing scale is p esen ed
in Table 3.
Table 3. The me hod o assessing he le el o en i onmen al in o ma ion disclosu e.
The Le el o In o ma ion Disclosu e Sco e
Full disclosu e o equi ed in o ma ion h ough quan i a i e da a o
quali a i e in o ma ion 2
Pa ial disclosu e o equi ed in o ma ion bu no comple e 1
Non-disclosu e o equi ed con en o disclosu e o i ele an in o ma ion 0
A e sco ing he i ems, he sco e ep esen s he le el o en i onmen al accoun ing
in o ma ion disclosu e o he company, calcula ed acco ding o he o mula:
ENVIi =∑Xn (2)
whe e
Xn is he sco e o i em n disclosed by company i in yea .
To illus a e he calcula ion me hod o he a iable ENVI, we p o ide an assessmen
and compu a ion example in Table 4. The company in his example is Vie nam Dai y
P oduc s Join S ock Company (VNM), one o he selec ed companies in he s udy sample.
The able below p esen s he e alua ion and compu a ion o he le el o en i onmen al
in o ma ion disclosu e o VNM in he yea 2022.
Table 4. Table assessing he le el o en i onmen al in o ma ion disclosu e o VNM in 2022.
I em Con en Sco e I em Con en Sco e
301-0 Managemen app oach 1 305-0 Managemen app oach 1
301-1 Ma e ials used by weigh o olume 0 305-1 Di ec (Scope 1) GHG emissions 1
301-2 Recycled inpu ma e ials used 2 305-2 Ene gy indi ec (Scope 2)
GHG emissions 1
301-3 Reclaimed p oduc s and hei packaging ma e ials 0 305-3 O he indi ec (Scope 3)
GHG emissions 0
302-0 Managemen app oach 1 305-4 GHG emissions in ensi y 1
302-1 Ene gy consump ion wi hin he o ganiza ion 1 305-5 Reduc ion in GHG emissions 1
302-2 Ene gy consump ion ou side o he o ganiza ion 0 305-6 Emissions o ozone-deple ing
subs ances (ODS) 0
30
J. Risk Financial Manag. 2024,17,62
Table 4. Con .
I em Con en Sco e I em Con en Sco e
302-3 Ene gy in ensi y 1 305-7
Ni ogen oxides (NOx), sul u
oxides (SOx), and o he signiﬁcan
ai emissions
0
302-4 Reduc ion in ene gy consump ion 2 306-0 Managemen app oach 1
302-5 Reduc ion in ene gy equi emen s o p oduc s
and se ices 2 306-1 Wa e discha ge by quali y
and des ina ion 1
303-0 Managemen app oach 1 306-2
Was e by ype and disposal me hod
2
303-1 Wa e wi hd awal by sou ce 2 306-3 Signiﬁcan spills 1
303-2 Wa e sou ces signiﬁcan ly a ec ed by wi hd awal
o wa e 1 306-4 T anspo o haza dous was e 1
303-3 Wa e ecycled and eused 1 306-5 Wa e bodies a ec ed by wa e
discha ges and/o uno 1
304-0 Managemen app oach 1 307-0 Managemen app oach 0
304-1
Ope a ional si es owned, leased, managed in, o
adjacen o, p o ec ed a eas and a eas o high
biodi e si y alue ou side p o ec ed a eas
0 307-1 Non-compliance wi h
en i onmen al laws and egula ions
0
304-2 Signiﬁcan impac s o ac i i ies, p oduc s, and
se ices on biodi e si y 1 308-0 Managemen app oach 1
304-3 Habi a s p o ec ed o es o ed 1 308-1 New supplie s ha we e sc eened
using en i onmen al c i e ia 2
304-4
IUCN Red Lis species and na ional conse a ion lis
species wi h habi a s in a eas a ec ed by ope a ions
0 308-2 Nega i e en i onmen al impac s in
he supply chain and ac ions aken 1
To al sco e (X) = 34
3.2.3. Con ol Va iables
The con ol a iables include business size (SIZE), ﬁnancial le e age (LEV), e u n on
asse s (ROA), and cu en a io (CR) as shown in Table 5.
Table 5. Measu emen o con ol a iables.
Code Con ol Va iable Measu emen Re e ences
SIZE Business size Log(To al Asse s) Ohlson (1980); De Jonghe e al. (2015);
Al-Hadi e al. (2019)
LEV Financial le e age Liabili ies/To al Asse s
Ayadi e al. (2015); Benlemlih e al. (2018);
Al-Hadi e al. (2019)
ROA Re u n on asse s (Ne Income/A e age To al Asse s)*100
Al man (1968); Bhunia and Mukhu i
(2012); Ahmed Sheikh and Wang (2013);
Al-Hadi e al. (2019)
CR Cu en a io Cu en Asse s/Cu en Liabili ies Bea e (1966); Edmis e (1972); Ohlson
(1980); Bhunia and Mukhu i (2012)
Based on heo e ical backg ound and p e ious s udies, om cons uc ing hypo heses
H1a and H1b, we p opose he esea ch model as ollows:
FRi =β0+β1ENVIi +β2SIZEi +β3LEVi +β4ROAi +β5CRi +εi (3)
31
J. Risk Financial Manag. 2024,17,62
and a e u ilized by nume ous businesses wo ldwide. The beneﬁ s o businesses using
hese s anda ds a e di e se, anging om s eng hening and enhancing he quali y o
hei en i onmen al accoun ing in o ma ion disclosu e o keeping pace wi h global ends,
inc easing he globaliza ion and compe i i eness o domes ic en e p ises in he wo ld.
Mo eo e , he esul s also indica e ha , in addi ion o he le el o en i onmen al
accoun ing disclosu e, ac o s such as he scale o he company, ﬁnancial le e age, e u n
on asse s, and cu en liquidi y also impac he ﬁnancial isk o he company. The e o e, o
mi iga e ﬁnancial isks, companies need o coo dina e and pay a en ion o hese ac o s o
achie e he op imal economic g ow h a e. This will also ensu e sus ainable de elopmen
and enhance he company’s epu a ion in he ma ke .
The eam has made e o s o accomplish he se objec i es; howe e , limi a ions s ill
exis . Fi s ly, his s udy only conﬁnes he measu emen o ﬁnancial isk and ou con ol
a iables, while he e a e o he ac o s ha could be u ilized o examine his ela ionship.
Secondly, he esea ch sample may no be su ﬁcien ly ep esen a i e o all lis ed companies
on he Hanoi S ock Exchange (HNX) and he Ho Chi Minh S ock Exchange (HOSE), and
companies in Vie nam as a whole. Addi ionally, he le el o en i onmen al in o ma ion
disclosu e in his s udy also ca ies a subjec i e aspec om he au ho s. The e o e, se e al
opics a e p oposed o u u e esea ch, such as expanding he in es iga ion in o he impac
o en i onmen al accoun ing in o ma ion disclosu e using di e en ﬁnancial isk models;
inco po a ing addi ional ac o s beyond he con ol a iables used in his pape , possibly
including pe cep ion ac o s. Ex ending he scope o he su ey o ensu e ep esen a i eness
o del ing in o a speciﬁc indus y o ensu e specializa ion is also sugges ed.
Au ho Con ibu ions:
Me hodology, N.L.S. and D.D.D.; So wa e, D.D.D.; Valida ion, D.D.D.;
Fo mal analysis, T.T.T.H.; In es iga ion, T.T.T.H.; Resou ces, T.T.T.H. and N.D.H.; Da a cu a ion,
N.D.H.; W i ing—o iginal d a , N.D.H.; W i ing— e iew & edi ing, N.L.S.; Visualiza ion, N.L.S.;
Supe ision, N.L.S.; P ojec adminis a ion, N.L.S. All au ho s ha e ead and ag eed o he published
e sion o he manusc ip .
Funding: This esea ch ecei ed no ex e nal unding.
Da a A ailabili y S a emen : No applicable.
Conﬂic s o In e es : The au ho s decla e no conﬂic o in e es .
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Disclaime /Publishe ’s No e:
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40
Ci a ion: Yoo, Sun-Keun, and Se-Hak
Chun. 2023. The E ec s o Co po a e
Financial Disclosu e on S ock P ices:
A Case S udy o Ko ea’s Compulso y
P elimina y Ea nings
Announcemen s. Jou nal o Risk and
Financial Managemen 16: 504.
h ps://doi.o g/10.3390/
j m16120504
Academic Edi o : ¸S e an C is ian
Ghe ghina
Recei ed: 12 Oc obe 2023
Re ised: 13 No embe 2023
Accep ed: 22 No embe 2023
Published: 6 Decembe 2023
Copy igh : © 2023 by he au ho s.
Licensee MDPI, Basel, Swi ze land.
This a icle is an open access a icle
dis ibu ed unde he e ms and
condi ions o he C ea i e Commons
A ibu ion (CC BY) license (h ps://
c ea i ecommons.o g/licenses/by/
4.0/).
Jou nal o
Risk and Financial
Managemen
A icle
The E ec s o Co po a e Financial Disclosu e on S ock P ices:
A Case S udy o Ko ea’s Compulso y P elimina y
Ea nings Announcemen s
Sun-Keun Yoo and Se-Hak Chun *
Depa men o Business Adminis a ion, Seoul Na ional Uni e si y o Science and Technology, 232 Gongneung- o,
Nowon-gu, Seoul 01811, Republic o Ko ea; [email p o ec ed]
*Co espondence: [email p o ec ed]; Tel.: +82-2-970-6487; Fax: +82-2-973-1349
Abs ac :
This pape examines he e ec s o Ko ea’s compulso y p elimina y ea nings announce-
men s on s ock p ices using indi idual co po a e ﬁnancial disclosu e da a. Ko ea’s compulso y
p elimina y ea nings announcemen s a e simila o he US’s ai disclosu es in ha hey a e p e-
limina y se lemen disclosu es. Disclosu e egula ion aims o p e en inside ading and esol e
in o ma ion asymme y among in es o s by p omp ly disclosing unconﬁ med in e nal se lemen
in o ma ion p io o an ex e nal audi . The disclosu e o such changes in p oﬁ o loss is gene ally
expec ed o a ec s ock p ices. Many s udies ha e analyzed he ela ionship be ween accoun ing
p oﬁ disclosu e and s ock p ices, bu mos ha e ocused on he ela ionship be ween ne p oﬁ
disclosu e and s ock p ice wi hou conside ing o he disclosu e in o ma ion such as sales and op-
e a ing p oﬁ . In addi ion, p e ious s udies analyzed he in o ma ion e ec o accoun ing p oﬁ s
based on annual epo s, which a e based on analys s’ p edic ed alues and limi ed da ase s. This
s udy in es iga es he impac o Ko ea’s compulso y disclosu e on s ock p ices h ough a mul iple
eg ession analysis, conside ing h ee ypes o accoun ing in o ma ion, including sales, ope a ing
p oﬁ , and ne p oﬁ , based on ac ual announcemen da a and daily ading olumes. The e ec o
co po a e ﬁnancial disclosu e migh a y wi h s ock ma ke ype and indus y sec o . Fo his eason,
we analyze he ela ionship be ween ﬁnancial disclosu e and s ock p ices o di e en s ock ma ke
ypes and indus y sec o s. Resul s show ha sales in o ma ion a ec ed KOSPI-lis ed companies’
s ock p ices, and ope a ing p oﬁ in o ma ion a ec ed KOSDAQ-lis ed companies’ s ock p ices. In
e ms o ﬁnancial ma ke e ﬁciency, he esul s show weak- o m e ﬁciency o bo h he KOSPI and
KOSDAQ ma ke s in gene al. Howe e , his implies ha he e is s ill in o ma ion asymme y in sales
in o ma ion o he KOSPI, which consis s o la ge and alued s ocks and is no comple ely e ﬁcien ,
whe eas in o ma ion asymme y migh occu in ope a ing p oﬁ in o ma ion o he KOSDAQ, which
consis s o ela i ely small- o-medium inno a i e g owing companies. In addi ion, esul s show ha
ope a ing p oﬁ s a ec manu ac u ing indus ies’ s ock p ices, and ha ading olumes signiﬁcan ly
impac s ock p ices o all ma ke s and indus ies.
Keywo ds:
compulso y disclosu e; ai disclosu e; p elimina y ea nings announcemen ; p oﬁ and
loss s uc u e change disclosu e
1. In oduc ion
Many s udies ha e in es iga ed he in o ma ion e ec o annual epo accoun ing
p oﬁ s on s ock p ices since Bea e (1968). They ocused on he impac o compulso y
ea nings announcemen s on s ock p ices o ﬁnd he ela ionship be ween unexpec ed
ea nings (ne p oﬁ minus analys -p edic ed ne p oﬁ ) and s ock p ices. They depended
on a small sample size o unexpec ed ea nings because analys s do no epo all s ocks.
In addi ion, he e is deba e ega ding whe he an annual epo is in o ma i e, because
accoun ing p oﬁ s can be p edic ed in he ma ke h ough p o isional se lemen disclosu e,
which is a olun a y ai disclosu e.
J. Risk Financial Manag. 2023,16, 504. h ps://doi.o g/10.3390/j m16120504 h ps://www.mdpi.com/jou nal/j m
J. Risk Financial Manag. 2023,16, 504
We in es iga e he impac o Ko ea’s compulso y p elimina y ea nings announcemen s
on s ock p ices using ac ual disclosu e announcemen da a. Unlike hose in he Uni ed
S a es, lis ed co po a ions in Ko ea a e obliged o immedia ely disclose changes in p oﬁ
and loss s uc u e be o e making hei annual epo s when majo changes in hei ﬁnancial
s uc u e occu . Ko ean ﬁ ms should immedia ely disclose changes in hei p oﬁ and loss
s uc u e i any indica o s o sales, ope a ing p oﬁ , o ne p oﬁ inc ease o dec ease by 30%
o mo e compa ed o he same pe iod in he p e ious yea . This egula ion was adop ed on
24 Ma ch 2000 o p e en inside ading and o esol e in o ma ion asymme y be ween
in es o s by p omp ly disclosing unconﬁ med in e nal se lemen in o ma ion p io o an
ex e nal audi . A e his egula ion was adop ed, many s udies we e conduc ed in Ko ea
ega ding he e ec o such disclosu es o p oﬁ and loss changes on s ock p ices (Jang and
Cheon 2003; Sohn and Lee 2005; Lee and Jung 2008; Jeong and Jeong 2014). Some s udies
showed ha accoun ing in o ma ion a ec ed s ock p ices (Jang and Cheon 2003; Sohn and
Lee 2005; Jeong and Jeong 2014), bu o he s showed ha accoun ing in o ma ion did no
a ec s ock p ices (Lee and Jung 2008). Howe e , hese s udies elied only on analys s’
o ecas s ins ead o ac ual da a. In addi ion, hey used only ne p oﬁ in o ma ion, bu no
o he impo an accoun ing in o ma ion, such as sales and ope a ing p oﬁ . This s udy
analyzes he impac o Ko ean compulso y disclosu e on s ock p ices by conside ing h ee
ypes o accoun ing in o ma ion (sales, ope a ing p oﬁ , and ne p oﬁ ) based on ac ual
announcemen da a. Mo eo e , his s udy analyzes he ela ionship be ween disclosu e
and s ock p ices using daily ading olumes o di e en ma ke ypes and sec o s.
This s udy con ibu es o he exis ing li e a u e as ollows: Fi s , we o e came he
limi a ions o exis ing esea ch by analyzing he e ec o Ko ean compulso y disclosu e
announcemen s ha a e p o isional, such as ai disclosu es, and compulso y, such as
annual epo s. Second, we comp ehensi ely analyzed and eﬂec ed on disclosu e e ec s
using ac ual sales, ope a ing p oﬁ , and ne p oﬁ in o ma ion ins ead o unexpec ed
ea nings based on analys s’ ne p oﬁ o ecas s. Thi d, we measu ed he disclosu e e ec
using he change in s ock p ice on he day o disclosu e.
The s uc u e o his pape is as ollows: Sec ion 2 e iews p e ious s udies; Sec ion 3
desc ibes da a used in his s udy; analysis and esul s a e p esen ed in Sec ion 4; Sec ion 5
p o ides conclusions and di ec ions o u he s udies.
2. Li e a u e Re iew
2.1. Ea nings Repo s and S ock P ices
Ea nings su p ises impac s ock p ices. In he e ﬁcien ma ke hypo hesis (EMH), as
desc ibed by Fama (1970), all publicly a ailable in o ma ion is ins an aneously eﬂec ed
in he s ock p ice; as a esul , no in es o s expec abno mal excess e u ns in he long
un. To e i y he well-es ablished EMH, many s udies ha e in es iga ed he in o ma ion
e ec o annual epo ne p oﬁ in o ma ion on s ock p ices. Howe e , hese s udies ha e
shown conﬂic ing esul s. Since Bea e (1968), many s udies ela ed o he in o ma ion
e ec o accoun ing p oﬁ s ha e been conduc ed; mos analyzed he ela ionship be ween
unexpec ed ea nings (ac ual income minus expec ed income) and s ock p ices using annual
epo s (Wilson 1987; C eady and Myna 1991; Lobo and Song 1989).
Some s udies ound ha an annual epo ’s unexpec ed ea nings could ha e an in o -
ma ion e ec , because in es o s p edic ne p oﬁ based on analys s’ ne p oﬁ o ecas s,
showing ha unexpec ed ea nings a ec s ock p ices (Wilson 1987; Lobo and Song 1989;
Ball and B own 1968; Busse and G een 2002; Cho dia e al. 2005; Cho dia e al. 2005).
Cho dia e al. (2005) analyzed he sho - e m e ec o announcemen s using in aday
e u ns o 150 NYSE s ocks du ing he calenda yea s 1996, 1999, and 2002; hey ound
ha weak- o m e ﬁciency appea ed o p e ail o e in e als om ﬁ e minu es o one day.
Lee and Choi (2009) analyzed a sample o ai disclosu es announced om Janua y 2003
o Sep embe 2004 using in aday da a o e i y he e ec i eness o eal- ime in o ma ion.
They showed ha s ock p ices eac ed immedia ely o ai disclosu es announced in eal
ime in he Ko ean s ock ma ke , and a gued ha when he e was an in aday disclosu e,
42
J. Risk Financial Manag. 2023,16, 504
he in o ma ion was ully eﬂec ed in he s ock p ice a he end o he day, wi h no in o -
ma ion delay un il he nex business day. Olibe e al. (2022) ound ha signiﬁcan p ice
and ading olume esponses accompanied ea nings in o ma ion in he days immedia ely
su ounding ea nings announcemen s.
Howe e , some s udies ailed o de ec such a p ice esponse. C eady and Myna
(1991) examined p ice and ading esponses o he elease o annual epo s o US com-
panies ha had al eady made p elimina y ea nings announcemen s. They ound ha
he p ice esponse was insigniﬁcan ly di e en om ze o o each o he e en days ex-
amined. Bänzige e al. (2023) ound a semi-s ong e ﬁcien ma ke be ween ea nings
announcemen s o Swiss companies and s ock p ices, and sugges ed ha p e- and pos -
announcemen abno mal e u ns we e modes and gene ally no s a is ically signiﬁcan .
Fink (2021) also ound ha an ea nings su p ise did no lead o a ull, ins an aneous s ock
p ice adjus men , bu a he o a low, p edic able d i .
2.2. Volun a y Fai Disclosu e in he U.S. and Compulso y Disclosu e in Ko ea
In he Uni ed S a es, he ai disclosu e sys em was ﬁ s in oduced in Oc obe 2000
o es ablish ai p o isional se lemen disclosu e. A li le ea lie , in Ma ch 2000, Ko ea
in oduced he p oﬁ and loss s uc u e change, which equi ed companies o immedia ely
disclose any indica o s o sales, ope a ing p oﬁ , o ne p oﬁ ha inc eased o dec eased
by 30% o mo e compa ed o he same pe iod in he p e ious yea . The in en in doing so
was o p e en inside ading and esol e in o ma ion asymme y be ween in es o s by
p omp ly disclosing unconﬁ med in e nal se lemen in o ma ion p io o an ex e nal audi .
Such disclosu e o changes in p oﬁ and loss was gene ally expec ed o a ec s ock p ices.
Heﬂin e al. (2003) a gued ha ai disclosu e played a ole in na owing he in-
o ma ion gap be ween in es o s; hey ound smalle de ia ions be ween p e- and pos -
announcemen s ock p ices. Howe e , Bailey e al. (2003) ound no signiﬁcan change
in e u n ola ili y a e ai disclosu e egula ion. Ahmed and Schneible (2007) epo ed
limi a ions, including selec i e disclosu es ega ding disclosu e de ails, and companies
ha chose whe he o no o disclose; howe e , he in o ma ion gap be ween in es o s had
been la gely esol ed by he in oduc ion o ai disclosu e. Sidhu e al. (2008) epo ed a
nega i e aspec , ha inaccu a e in o ma ion migh be p o ided o he ma ke as companies
became mo e a bi a y in hei disclosu e p ocess.
Since he adop ion o compulso y disclosu e in Ko ea, many s udies ha e shown ha
ai disclosu e has in o ma ion e ec s (Jang and Cheon 2003; Lee and Choi 2009; Jeong
and Jeong 2014; Kim 2018). Some s udies ha e ound ha accoun ing in o ma ion a ec ed
s ock p ices (Jang and Cheon 2003; Sohn and Lee 2005; Jeong and Jeong 2014; Sohn e al.
2015; Lee 2020). Sohn and Lee (2005) showed a ela ionship be ween unexpec ed ne p oﬁ
and s ock p ice using analys s’ o ecas s. Lee and Choi (2009) analyzed a sample o ai
disclosu es announced om Janua y 2003 o Sep embe 2004 using in aday da a o e i y
he e ec i eness o eal- ime in o ma ion. They showed ha s ock p ices immedia ely
eac ed o ai disclosu es announced in eal ime in he Ko ean s ock ma ke , and a gued
ha when he e was an in aday disclosu e, he in o ma ion was ully eﬂec ed in he s ock
p ice a he end o he day, and ha he e was no in o ma ion delay un il he nex business
day. Howe e , Lee and Jung (2008) ound no ela ionship be ween unexpec ed ne p oﬁ
and s ock p ice when hey used analys s’ o ecas s; his implies ha esea che s need o
analyze he ela ionship be ween ne p oﬁ and s ock p ice based on ac ual da a ins ead o
analys s’ o ecas s.
These con o e sial esul s mo i a ed us o examine he ollowing ques ions: Why
we e he esul s di e en ? Why did esea che s ely on only ne p oﬁ in o ma ion o
ﬁnd he ela ionship be ween disclosu e in o ma ion and s ock p ice? Why did hey use
analys s’ o ecas in o ma ion ins ead o using ac ual da a? Thus, we ied o ﬁll he gaps
le by he limi a ions o p e ious s udies and in es iga ed how he disclosu e o p oﬁ and
loss s uc u e changes a ec ed s ock p ices o di e en ma ke ypes and sec o s.
43

J. Risk Financial Manag. 2023,16, 504
3. Ma e ials and Me hods
3.1. Da a Desc ip ion
We used web c awling o collec disclosu e in o ma ion om he Ko ea Exchange’s
elec onic disclosu e sys em (KIND) o Janua y o Ma ch 2021 o lis ed co po a ions
on he KOSPI and he KOSDAQ ha disclosed changes in hei p oﬁ and loss s uc u e.
The e a e app oxima ely 800 companies lis ed on he KOSPI and app oxima ely 1400 com-
panies lis ed on he KOSDAQ; app oxima ely 80% o hese companies disclose changes
in p oﬁ and loss s uc u e a he beginning o each yea . We ob ained 932 eco ds om
2139 disclosu es a e emo ing 556 co ec i e disclosu es and 652 eco ds o non-nume ical
in o ma ion ega ding su plus and deﬁci con e sion. Sohn e al. (2015) analyzed co ec i e
announcemen s and epo ed ha hey ha e no in o ma ion e ec , so we excluded hem
om he sample.
3.2. Me hodology
We used he ollowing eg ession model o in es iga e how disclosu e in o ma ion
ega ding p oﬁ and loss s uc u e changes a ec ed s ock p ices o di e en ma ke ypes
and ma ke sec o s.
AR =b0+b1SR +b2OPR +b3NPR +b4VR +e
Table 1 desc ibes he eg ession model’s independen and dependen a iables.
Table 1. Va iables desc ip ion.
No Ca ego y Va iable Symbols Desc ip ion Re e ences
1 Dependen a iable Abno mal e u ns (AR) Ri −Rm =
Pi −Pi −1
Pi −1−
n
∑
i=1
(pi −pi −1
pi −1)/n
Sohn and Lee (2005), Cho dia
e al. (2005), Kim (2018),
G egoi e and Ma ineau (2022),
Bänzige e al. (2023)
2 Independen a iable Change a e o sales (SR)
SRi −SRi −1
SRi −1whe e is he yea , and
binned om −5 o5 Lee and Yoo (2012), Kim (2021)
3 Independen a iable Change a e o ope a ing
p oﬁ (OPR)
OPRi −OPRi −1
OPRi −1whe e is he yea , and
binned om −5 o5
Hue and Yoo (2009), Kang and
Choi (2014), Kim (2021)
4 Independen a iable Change a e o ne
p oﬁ (NPR)
NPRi −NPRi −1
NPRi −1whe e is he yea , and
binned om −5 o5
Bea e e al. (1979), Ko ha i
(2001), B adshaw e al. (2012),
Kim (2018), G egoi e and
Ma ineau (2022)
5 Independen a iable Change a e o
olume (VR)
ln(VRi )−ln(VRi −1)
ln(VRi −1)whe e is he day
Wes e ﬁeld (1977), Epps (1977),
Gallan e al. (1992), An e al.
(2006), Jeong and Jeong (2014),
Choi (2019), Pa k (2021)
We used a dependen a iable as he abno mal e u ns by sub ac ing he a e age
s ock p ice change a e o he sec o o which each company belonged om he indi idual
company’s s ock p ice change a e (Sohn and Lee 2005; Cho dia e al. 2005; Kim 2018;
G egoi e and Ma ineau 2022; Bänzige e al. 2023). Thus, abno mal e u ns we e deno ed by
ARi =Ri −Rm
He e,
Ri =Pi −Pi −1
Pi −1
, whe e
Pi
is he indi idual s ock p ice and
Pi −1
is he s ock p ice o
he p e ious day, and
Rm =n
∑
i=1
(pi −pi −1
pi −1)/n
, whe e mis he ma ke sec o o which each
company belongs, and nis he o al numbe o ﬁ ms in he ma ke sec o . We used h ee
disclosu es as independen a iables: pe cen age change in sales, pe cen age change in
p oﬁ , and pe cen age change in ne p oﬁ . We di ided each o hese h ee independen
a iables in o 10 bins because he linea ela ionship be ween excess e u ns and unexpec ed
44
J. Risk Financial Manag. 2023,16, 504
ea nings diminishes when he nume ical ola ili y o unexpec ed ea nings is high (Bea e
e al. 1979; Ko ha i 2001; Kimb ough 2005; Khan and Wa s 2009; Kim 2018). Thus, i he
pe cen age change in sales, p oﬁ , and ne p oﬁ inc eased by 30% o less yea -o e -yea , we
ca ego ized i as 1; a 30–60% change in sales, p oﬁ , and ne p oﬁ was ca ego ized as 2; a
60–90% change was ca ego ized as 3; 90–120% as 4; and 120% o mo e as 5. We ca ego ized
dec eases he same way, as
−
1,
−
2,
−
3,
−
4, and
−
5, espec i ely; al oge he we o med
10 bins, om
−
5 o 5. In addi ion, we conside ed he olume change a e as an independen
a iable because i played a ole in in es o s’ decisions and has been posi i ely ela ed
o p ice changes (Pa k 2021; Choi 2019; Jeong and Jeong 2014; An e al. 2006; Wes e ﬁeld
1977; Epps 1977; Gallan e al. 1992). Pa k (2021) ound ha an abno mal inc ease in he
ading olume o an indi idual s ock had a signiﬁcan posi i e (+) ela ionship wi h he
s ock’s excess e u n. Gallan e al. (1992) sugges ed ha i is e ec i e o simul aneously
conside a ious da a, including ading olume, o a mo e accu a e s ock p ice p edic ion.
The e o e, we ob ained he olume change a e using he loga i hm o he olume on he
disclosu e day minus he loga i hm o he olume on he day be o e disclosu e day, which
is ln(VRi )−ln(VRi −1)
ln(VRi −1).
Nex , we examined he e ec o disclosu e in o ma ion o wo ma ke s ( he KOSPI
and he KOSDAQ) because di e en ma ke s migh eac di e en ly o disclosu es (G an
1980). The KOSPI ma ke is composed o la ge-cap s ocks ha ha e been lis ed o a long
ime. The e is much in o ma ion a ailable o la ge companies in he ma ke , and he e
migh be less unexpec ed in o ma ion a he ime when ea nings a e ac ually disclosed
(A iase 1985). Howe e , he KOSDAQ ma ke is composed o small- and mid-cap s ocks
ha ha e been lis ed o a ela i ely sho pe iod o ime. We also examined whe he he
e ec o disclosu e in o ma ion di e ed be ween manu ac u ing and non-manu ac u ing
ﬁ ms, because exis ing s udies mainly analyzed manu ac u ing ﬁ ms.
4. Resul s
4.1. Desc ip i e S a is ics
P io o empi ical analysis, he desc ip i e s a is ics o a iables used in his s udy
we e conﬁ med. The alues o independen and dependen a iables a e shown in Table 2.
Table 2 indica es ha he o e all accoun ing p oﬁ , ading olume, and s ock p ice in-
c eased abo e he ma ke a e age because a e ages o sales, ope a ing p oﬁ , ne p oﬁ ,
and olume change we e all posi i e on he da e o changes in p oﬁ and loss disclosu e.
Table 2. Desc ip i e s a is ics.
Sales P oﬁ Ne P oﬁ Volume AR
Coun 932 932 932 932 932
Mean 0.21 0.42 0.39 0.22 0.09
S d 1.47 2.69 3.06 0.80 3.05
Min −4.00 −5.00 −5.00 −3.02 −9.84
25% −1.00 −2.00 −2.00 −0.25 −1.59
50% 1.00 1.00 1.00 0.15 −0.06
75% 1.00 2.00 3.00 0.63 1.56
Max 5.00 5.00 5.00 3.52 16.80
4.2. Co ela ion Analysis
Table 3 shows co ela ion analysis esul s; he e was a signiﬁcan posi i e co ela ion
among a iables. In pa icula , ading olume was closely ela ed o e u ns and s ock
p ices. Among he ﬁnancial disclosu e in o ma ion, ope a ing p oﬁ was he mos highly
co ela ed wi h abno mal e u ns, ollowed by ne p oﬁ and sales.
45
J. Risk Financial Manag. 2023,16, 504
Table 3. Co ela ion analysis.
Sales P oﬁ Ne P oﬁ Volume AR
Sales 1 0.447 * 0.321 * 0.100 * 0.096 *
P oﬁ 0.447 * 1 0.640 * 0.149 * 0.141 *
Ne P oﬁ 0.321 * 0.640 * 1 0.117 * 0.118 *
Volume 0.100 * 0.149 * 0.117 * 1 0.368 *
AR 0.096 * 0.141 * 0.118 * 0.368 * 1
* deno es 1% signiﬁcance wi h p- alue less han 0.01.
4.3. Resul s o he Ma ke Model
A eg ession analysis o each o he KOSPI and KOSDAQ ma ke s was conduc ed
o in es iga e he inﬂuence o h ee ypes o ﬁnancial disclosu e in o ma ion and ading
olume on he s ock p ice. We used he ollowing eg ession model o in es iga e how
compulso y disclosu e in o ma ion a ec ed s ock p ices o di e en ma ke ypes as
ollows:
ARi=b0+b1SRi+b2OPRi+b3NPRi+b4VRi+e
whe e i ep esen s KOSPI and KOSDAQ ma ke ypes.
Table 4 shows eg ession analysis esul s wi h ou ac o s as independen a iables
and he s ock p ice change as he dependen a iable.
Table 4. Reg ession analysis esul s o ma ke models.
Va iables Ma ke
KOSPI KOSDAQ To al
In e cep
Coe ﬁcien −0.232 −0.628 −0.533
-Value
(Sig.)
−0.106
(0.916)
−0.348
(0.728)
−0.380
(0.704)
Change a e o sales
(SR)
Coe ﬁcien 0.359 −0.146 0.051
-Value
(Sig.)
3.171 *
(0.002)
−1.614
(0.107)
0.722
(0.470)
Change a e o ope a ing
p oﬁ (OPR)
Coe ﬁcien −0.012 0.123 0.065
-Value
(Sig.)
−0.161
(0.872)
2.009 **
(0.045)
1.356
(0.175)
Change a e o ne p oﬁ
(NPR)
Coe ﬁcien 0.066 0.008 0.033
-Value
(Sig.)
0.984
(0.326)
0.172
(0.863)
0.823
(0.411)
Change a e o olume (VR)
Coe ﬁcien 1.357 1.285 1.340
-Value
(Sig.)
8.711 *
(0.000)
7.227 *
(0.000)
11.463 *
(0.000)
Adj. R20.208 0.096 0.140
Obs. 367 565 932
* and ** deno e 1% and 5% signiﬁcance, espec i ely.
Table 4 shows ha he e a e no signiﬁcan a iables o o al sum o KOSDAQ and
KOSPI da a, excep ading olume, which had a 1% signiﬁcance le el. Howe e , sales
and ading olume a iables we e ound o ha e 1% s a is ical signiﬁcance o he KOSPI
ma ke da a, and ope a ing p oﬁ a iable had 5% signiﬁcance and ading olume had 1%
s a is ical signiﬁcance o he KOSDAQ ma ke da a. These esul s a e in e es ing because
p e ious s udies conside ed only ne p oﬁ as a signiﬁcan a iable. Ou esul s show
ha sales and ope a ing p oﬁ a ec s ock p ices mo e han ne p oﬁ does. Kim (2021)
showed ha changes in he pe o mance o a company’s main ope a ing ac i i ies had
a mo e signiﬁcan impac on s ock p ice ﬂuc ua ions han non-ope a ing ac i i ies did.
46
J. Risk Financial Manag. 2023,16, 504
Fu he mo e, Kim (2021) said ha change a e o ope a ing p oﬁ a ec ed s ock p ices
o s a up companies which was es ablished 10 yea s o less ago, whe eas change a e o
sales a ec ed s ock p ices o somewha es ablished companies which a e 11 o 30 yea s old,
which suppo ed ou esul s ha sales a ec ed KOSPI s ock p ices and ope a ing p oﬁ s
a ec ed KOSDAQ s ock p ices. Ou esul s a e consis en wi h hose o G an (1980) and
A iase (1985), who ound ha s ock p ice eac ions o accoun ing ea nings a ied ac oss
ma ke s. The esul s also show ha ading olume had a signiﬁcan impac on s ock
p ices ega dless o KOSPI o KOSDAQ ma ke ype. This implies ha ma ke pa icipan s
conside ading olume as well as sales and ope a ing p oﬁ , because s ock p ices ends
o ise when ading olume inc eased on announcemen day compa ed o he day be o e
he announcemen .
4.4. Resul s o he Sec o Model
Reg ession analysis was conduc ed o he wo sec o s o in es iga e he inﬂuence
o h ee ypes o ﬁnancial in o ma ion and olume on he s ock p ice. We also used he
ollowing eg ession model o di e en sec o s:
ARi=b0+b1SRi+b2OPRi+b3NPRi+b4VRi+e
whe e i ep esen s manu ac u ing and non-manu ac u ing ma ke sec o s.
Table 5 shows he esul s o eg ession analysis o he sec o model ha ope a ing
p oﬁ a ec s manu ac u ing ﬁ ms’ s ock p ices a a 10% signiﬁcance, whe eas no accoun ing
p oﬁ a ec s non-manu ac u ing ﬁ ms’ s ock p ices. Addi ionally, ading olume a ec s
s ock p ices o bo h manu ac u ing and non-manu ac u ing indus ies a 1% signiﬁcance.
Table 5. Reg ession esul s o sec o models.
Va iables Sec o
Manu ac u ing Non-Manu ac u ing
In e cep
Coe ﬁcien −0.352 −0.980
-Value
(Sig.)
−0.194
(0.846)
−0.408
(0.683)
Change a e o sales
(SR)
Coe ﬁcien 0.059 0.054
-Value
(Sig.)
0.623
(0.533)
0.468
(0.641)
Change a e o ope a ing
p oﬁ (OPR)
Coe ﬁcien 0.111 −0.014
-Value
(Sig.)
1.740 ***
(0.082)
−0.183
(0.855)
Change a e o ne p oﬁ
(NPR)
Coe ﬁcien −0.004 0.093
-Value
(Sig.)
−0.072
(0.942)
1.398
(0.163)
Change a e o olume
(VR)
Coe ﬁcien 1.372 1.285
-Value
(Sig.)
9.362 *
(0.000)
1.319 *
(0.000)
Adj. R20.153 0.120
Obs. 577 287
* and *** deno e 1% and 10% signiﬁcance, espec i ely.
5. Conclusions
This pape examined he e ec s o Ko ea’s compulso y p elimina y p oﬁ and loss
disclosu e on s ock p ices using indi idual co po a e ﬁnancial p oﬁ and loss disclosu e
da a. The e ec o co po a e ﬁnancial disclosu e migh a y by s ock ma ke ype and
47
J. Risk Financial Manag. 2023,16, 429
Disclosu e Sco e, which p o ide de ailed insigh s ac oss di e se ESG opics and indica o s.
The impac o capex on ESG disclosu e can a y based on ac o s such as expendi u e
magni ude and ype. Fo ins ance, modes capex le els may ha e minimal inﬂuence, while
highe le els could lead o posi i e o nega i e ou comes, depending on hei impac on
oppo uni ies and isks o ﬁ ms and s akeholde s.
To add ess hese gaps, his s udy conduc s a comp ehensi e examina ion o capex’s
impac on ESG disclosu e and e alua es he mode a ing ole o go e nance. The esea ch
u ilizes a unique da ase comp ising non-ﬁnancial ﬁ ms included in he FTSE All Sha e
index in he Uni ed Kingdom om 2012 o 2021. ESG disclosu e is me iculously mea-
su ed using he Bloombe g ESG Disclosu e Sco e. Me hodologically, his s udy employs
ins umen al a iable echniques o add ess endogenei y conce ns and u ilizes spline e-
g ession models o explo e po en ial non-linea i ies and h esholds. In essence, his s udy
con ibu es aluable insigh s in o he complex in e play among capex, go e nance, and
ESG disclosu e, pa icula ly wi hin he con ex o he Uni ed Kingdom. These ﬁndings
ha e p ac ical implica ions o co po a ions, in es o s, and egula o y bodies, p o iding
ac ionable guidance o in eg a ing ESG conside a ions in o capex decision making and
e ec i ely communica ing ESG pe o mance and i s consequences o di e se s akeholde s.
2.2. Theo e ical F amewo k and Hypo hesis De elopmen
We d aw on wo main heo ies o explain he link be ween capi al expendi u e and
ESG disclosu e: S akeholde heo y and Resou ce Dependence heo y. S akeholde heo y
(F eeman 1984; Donaldson and P es on 1995; Mi chell e al. 1997) posi s ha ﬁ ms should
conside he in e es s and expec a ions o a ious s akeholde s beyond sha eholde s, such
as cus ome s, employees, supplie s, egula o s, and socie y. By in es ing in capi al expen-
di u e, ﬁ ms can enhance hei epu a ion and legi imacy among hei s akeholde s, as hey
demons a e hei commi men o inno a ion and g ow h. This may induce ﬁ ms o p o-
ide a g ea e amoun o ESG, as hey seek o communica e hei social and en i onmen al
esponsibili y and pe o mance o hei s akeholde s. Based on his heo y, we hypo hesize
ha he e is a posi i e associa ion be ween capi al expendi u e and ESG disclosu e:
H1. The e is a signiﬁcan posi i e connec ion be ween capi al expendi u e and ESG epo ing.
Resou ce Dependence heo y (P e e and Salancik 1978; Hillman e al. 2009) sugges s
ha ﬁ ms in es in capi al expendi u e o acqui e and main ain aluable esou ces ha
enable hem o su i e and h i e. By doing so, hey can imp o e hei e ﬁciency, quali y,
and di e en ia ion, which can inc ease hei ma ke sha e and p oﬁ abili y. Howe e ,
capi al expendi u e can also inﬂuence he cos o capi al o ﬁ ms, which is he minimum
e u n ha hey mus gene a e on hei in es men s o sa is y hei in es o s and c edi o s.
The cos o capi al comp ises he cos o equi y and he cos o deb , which eﬂec he isk
and e u n expec a ions o equi y holde s and deb holde s, espec i ely.
Capi al expendi u e (capex) can inﬂuence he cos o capi al in wo main ways: by
inc easing o dec easing he isk o he company and by a ec ing he company’s access o
capi al. Fo ins ance, i can boos he g ow h po en ial and p oﬁ abili y o a ﬁ m, lowe ing
i s isk and inc easing i s alue. This can dec ease he cos o equi y and deb , as in es o s
and c edi o s equi e lowe e u ns o in es ing in a less isky and mo e aluable ﬁ m
(Modigliani and Mille 1958; Mye s 1977). Al e na i ely, i can inc ease he ﬁ m’s ﬁnancial
isk, which can lead o highe le e age and bank up cy cos s. This can inc ease he cos o
deb and equi y, as c edi o s cha ge highe in e es a es and c edi sp eads o lending o a
iskie ﬁ m and as equi y holde s demand highe e u ns o in es ing in a mo e ola ile
ﬁ m (Modigliani and Mille 1958).
Capex can also a ec he cos o capi al indi ec ly h ough ESG disclosu e. ESG
disclosu e p o ides in o ma ion abou he social and en i onmen al impac s and isks o a
ﬁ m’s capex, a ec ing i s epu a ion, legi imacy, s akeholde ela ions, and access o capi al.
ESG disclosu e can help in es o s and c edi o s o be e unde s and he ﬁ m’s ESG isks
and pe o mance, which can lead o lowe cos o capi al. This is because ESG disclosu e
54

J. Risk Financial Manag. 2023,16, 429
can educe in o ma ion asymme y and agency cos s be ween a ﬁ m and i s in es o s
and c edi o s, as well as signal he ﬁ m’s commi men o sus ainabili y and esponsibili y
(Healy and Palepu 2001; El Ghoul e al. 2011). ESG disclosu e can also aise he cos o
capi al by c ea ing expec a ions and obliga ions o a ﬁ m o main ain o imp o e i s ESG
pe o mance o by exposing he ﬁ m o po en ial li iga ion o egula ion ela ed o i s ESG
impac s o isks (Dhaliwal e al. 2011; Ioannou and Se a eim 2019).
The e ec o capi al expendi u e on ESG disclosu e may also a y depending on
he quali y and e ec i eness o co po a e go e nance p ac ices. Co po a e go e nance,
e e ing o he sys em o ules, p ac ices, and p ocesses by which a ﬁ m is di ec ed and
con olled, plays a i al ole in inﬂuencing he associa ion be ween capi al expendi u e
(capex) and En i onmen al, Social, and Go e nance (ESG) disclosu e. I encompasses he
balance o powe and accoun abili y among a ious s akeholde s, including sha eholde s,
he boa d o di ec o s, managemen , audi o s, egula o s, and socie y. Co po a e go e -
nance’s impac on a ﬁ m’s ESG disclosu e and pe o mance is signiﬁcan , as i can shape
he quali y and quan i y o in o ma ion epo ed o s akeholde s (Ng and Rezaee 2015;
Eliwa e al. 2021).
The choice o he Uni ed Kingdom as he p ima y ocus o ou s udy is s a egic and
g ounded in se e al compelling ac o s ha es ablish i as an op imal con ex o in es-
iga ing he ela ionships be ween ESG epo ing and audi ees (Moussa 2023). Fi s ly,
he Uni ed Kingdom consis en ly exhibi s a s ong commi men o p omo ing co po a e
sus ainabili y and ESG epo ing h ough a ious egula o y ini ia i es, such as he UK
Co po a e Go e nance Code (ICAEW (Ins i u e o Cha e ed Accoun an s in England
and Wales) 2021), he UK Lis ing Rules, and he Task o ce on Clima e- ela ed Financial
Disclosu es (TCFD). These ini ia i es e ec i ely encou age companies o p o ide mo e
comp ehensi e ESG- ela ed in o ma ion, ende ing he UK an ideal en i onmen o explo -
ing he po en ial cos implica ions o ESG epo ing on audi ees. Secondly, he co po a e
go e nance landscape in he UK is well es ablished, ea u ing an a ay o guidelines and
codes ha ad oca e o obus go e nance p ac ices. Ou s udy del es in o how he p es-
ence o obus co po a e go e nance mechanisms inﬂuences he associa ion be ween ESG
epo ing and audi cos s, o e ing aluable insigh s in o go e nance’s ole in mi iga ing he
expenses associa ed wi h ESG epo ing. Las ly, he a ailabili y o ex ensi e ﬁnancial and
ESG disclosu e da a o UK-lis ed companies, sou ced om annual epo s, sus ainabili y
epo s, and hi d-pa y da a p o ide s, acili a es igo ous empi ical analysis. This da a
ichness ensu es a comp ehensi e explo a ion o ou esea ch ques ions, s eng hening he
dep h and alidi y o ou s udy. Based on his heo y, we hypo hesize ha :
H2.
The e is a signiﬁcan mode a ing e ec o co po a e go e nance p ac ices on he associa ion
be ween capi al expendi u e and ESG epo ing.
We expec ha co po a e go e nance p ac ices will enhance he posi i e e ec o capex
on ESG disclosu e by inc easing he c edibili y and eliabili y o disclosu e, as well as he
esponsi eness and accoun abili y o ﬁ ms o hei s akeholde s’ demands and p essu es.
3. Resea ch Me hodology
3.1. Resea ch Design and Da a Collec ion
This s udy uses a quan i a i e echnique o in es iga e he associa ion be ween capi al
expendi u e (capex) and En i onmen al, Social, and Go e nance (ESG) epo ing le el and
he mode a ing ole o co po a e go e nance in his associa ion, using a no el da ase o
non-ﬁnancial ﬁ ms lis ed in he FTSE All Sha e index in he UK om 2012 o 2021. To his
end, da a on capex, ESG disclosu e le el, and co po a e go e nance a iables a e collec ed
om he Bloombe g da abase, while ﬁnancial da a on Fi m Size, P oﬁ abili y, Liquidi y,
Boa d Size, and Independen Boa d and Audi Commi ee Non-Execu i es a e ob ained
om he Eikon da abase. The da a collec ion co e s a en-yea pe iod, ensu ing a su ﬁcien
ime span o measu ing he e ec o capex on ESG disclosu e le el.
55
J. Risk Financial Manag. 2023,16, 429
3.2. Sample Selec ion and Da a Sou ces
The sample includes non-ﬁnancial ﬁ ms ha we e aded on he UK FTSE All Sha e
index du ing he esea ch pe iod. The selec ion o he UK ma ke as he esea ch con ex
was mo i a ed by se e al easons. Fi s ly, he UK ma ke comp ises a di e se a ay o well-
es ablished companies ac oss di e en indus ies, allowing o a ho ough examina ion
o a ious le els o capex, ESG disclosu e, and co po a e go e nance p ac ices. Secondly,
he UK has a s ong amewo k o ESG epo ing, suppo ed by egula o y p o isions
such as he Code o Co po a e Go e nance in he UK and he Companies Ac 2006 (ICAEW
(Ins i u e o Cha e ed Accoun an s in England and Wales) 2021), he eby c ea ing a con-
duci e egula o y en i onmen o in es iga ing he associa ion be ween capex and ESG
disclosu e. Thi dly, he e is a g owing demand o ESG in o ma ion in he UK ma ke due
o he inc easing ecogni ion o sus ainable business p ac ices. The ﬁndings om his s udy
also possess applicabili y beyond he UK, o e ing aluable pe spec i es o ﬁ ms in o he
coun ies ha ha e simila ESG epo ing equi emen s and go e nance p ac ices.
3.3. Va iables and Measu emen
This sec ion p o ides an o e iew o a iables and measu emen me hods o his
s udy. We will show how we calcula e he le el o capex, ESG disclosu e, co po a e
go e nance, and he o he ac o s ha may inﬂuence hei ela ionship.
3.3.1. Capex
We measu e Capex by aking he loga i hm o he a io o capi al expendi u e o o al
asse s (Capex/TA). This a io shows he p opo ion o a ﬁ m’s o al asse s ha a e in es ed
in i s long- e m asse s. Capex indica es he ﬁ m’s g ow h oppo uni ies and s a egic
choices o i s u u e ope a ions and compe i i eness. Capex also a ec s ESG disclosu e,
as ﬁ ms wi h highe Capex may encoun e mo e s akeholde p essu e o disclose he
en i onmen al and social impac s and isks o hei in es men s.
3.3.2. ESG Disclosu e
ESG disclosu e le el indica es how much a ﬁ m e eals abou i s nonﬁnancial in o -
ma ion conce ning en i onmen al, social, and go e nance issues in i s public documen s,
such as annual epo s and sus ainabili y epo s (Bo o e al. 2020). Bloombe g p o ides a
sco e o ESG epo ing based on he da a a ailable om hese sou ces, as well as om he
ﬁ m’s websi e. The sco e eﬂec s he ex en o ESG disclosu e by ﬁ ms, wi h 0.1 indica ing
minimal disclosu e and 100 indica ing maximal disclosu e (Moussa 2023).
3.3.3. Co po a e Go e nance
Co po a e go e nance is a e m ha e e s o he sys em o ules, p ac ices and p o-
cesses by which a company is di ec ed and con olled (Cha e ed Go e nance Ins i u e
UK & I eland 2019). Co po a e go e nance can a ec bo h capi al expendi u e (capex)
and En i onmen al, Social, and Go e nance (ESG) disclosu e decisions, as i inﬂuences
how manage s alloca e esou ces and communica e wi h s akeholde s. Capex e e s o he
spending on long- e m asse s ha gene a e u u e cash ﬂows and g ow h oppo uni ies o
he company. ESG disclosu e e e s o he communica ion o a company’s policies and pe -
o mance on en i onmen al, social, and go e nance issues o i s s akeholde s. Bo h capex
and ESG disclosu e can a ec he company’s isk p oﬁle, epu a ion, and compe i i eness
in he ma ke .
To measu e Go e nance, we use ou indica o s ha eﬂec he composi ion and
independence o he boa d o di ec o s and he audi commi ee o he company. These in-
dica o s a e Boa d Size, which eﬂec s he numbe o di ec o s on he boa d o he company
(End ika e al. 2021); Boa d Di e si y, which cap u es he p opo ion o emale di ec o s o
o al di ec o s on he boa d o he company; Independen Boa d, which gauges he sha e o
boa d membe s who a e ee om he inﬂuence o he company’s managemen o majo
sha eholde s (Gha an and O’Sulli an 2017); and Audi Commi ee Non-Execu i es, which
56
J. Risk Financial Manag. 2023,16, 429
indica es he p esence o non-execu i e di ec o s in he audi commi ee o he company
who a e independen om he company’s managemen (Gha an and O’Sulli an 2017).
To cap u e he combined e ec o hese Go e nance mechanisms on capex and ESG
disclosu e decisions, we use he p incipal componen analysis (PCA) echnique (A ena
e al. 2015; Mallin e al. 2013; Moussa 2023; Elma zouky e al. 2021). PCA is a s a is ical
me hod ha simpliﬁes a da a se by changing i in o a new coo dina e sys em whe e ewe
dimensions han he o iginal da a can cap u e mos o he a ia ion in he da a.
The use o PCA in his s udy has se e al ad an ages, as sugges ed by Moussa (2023):
•
I pe mi s us o cap u e he combined impac o mul iple Go e nance mechanisms on
capex and ESG disclosu e decisions.
•
I helps o add ess issues o mul icollinea i y and measu emen e o ha may a ise
om using mul iple co ela ed a iables.
•
I p o ides a comp ehensi e and eliable measu e o Go e nance ha can be compa ed
ac oss di e en companies and indus ies.
By u ilizing PCA, we can o e come po en ial challenges associa ed wi h analyzing
mul iple independen a iables simul aneously. This analy ical echnique condenses he
in o ma ion om boa d size, independen boa d membe s, audi commi ee non-execu i es,
and audi commi ee independence in o a uniﬁed measu e. I enables us o cap u e he
o e all e ec o Go e nance on capex and ESG disclosu e decisions, acili a ing a mo e
holis ic comp ehension o he ela ionships amongs Go e nance mechanisms and he
dependen a iables.
3.3.4. Con ol Va iables
We use se e al con ol a iables in ou eg ession models o in es iga e how capex and
ESG disclosu e le el a e ela ed and how co po a e go e nance inﬂuences his ela ionship.
These con ol a iables a e Fi m Size, which is he na u al loga i hm o o al asse s (F ank
and Shen 2016); Liquidi y, which is he cu en a io ha indica es he company’s abili y
o pay i s sho - e m liabili ies wi h i s cu en asse s (Cho e al. 2021); P oﬁ abili y, which
is he e u n on asse s (ROA) ha shows he company’s ﬁnancial pe o mance (Cho e al.
2021; Hou e al. 2012); Boa d Size, which is he numbe o di ec o s on he boa d (Hou e al.
2012); Boa d Di e si y, which is he pe cen age o emale di ec o s on he boa d (Hou e al.
2012); Independen Boa d, which is he pe cen age o independen di ec o s on he boa d
(Gha an and O’Sulli an 2017); Audi Commi ee Non-Execu i es, which is he pe cen age
o non-execu i e di ec o s on he audi commi ee (Gha an and O’Sulli an 2017); and
Cons an , which is a ﬁxed alue ha does no change wi h he independen a iables. These
con ol a iables help us con ol o o he ac o s ha may a ec he dependen a iables
and inc ease he alidi y o ou analysis.
3.4. Empi ical Models and Econome ic Techniques
We will use wo eg ession models o es he e ec o capex on ESG disclosu e and
he mode a ing ole o co po a e go e nance in his e ec : a ﬁ s model ha con ols o all
he o he a iables and a second model ha adds an in e ac ion e m o see how co po a e
go e nance changes he e ec .
Fi s model: ESG Disclosu e Le el =
β
0+
β
1
×
Capex +
β
2
×
Fi m Size +
β
3
×
Liq-
uidi y +
β
4
×
P oﬁ abili y +
β
5
×
Boa d Size +
β
6
×
Boa d Di e si y +
β
7
×
Independen
Boa d + β8×Audi commi ee non-execu i es + β9×Cons an .
Wi hin his model, ESG Disclosu e Le el se es as he dependen a iable and is mea-
su ed by a se o independen a iables, namely Capex, Fi m Size, Liquidi y, P oﬁ abili y,
Boa d Size, Boa d Di e si y, Independen Boa d, Audi Commi ee Non-Execu i es, and
Cons an . These independen a iables ha e coe ﬁcien s (
β
) ha indica e he e ec o a
one-uni change in he co esponding explana o y a iable on he ou come a iable (ESG
Disclosu e Le el). The model does no accoun o all he a ia ions in he ou come a iable,
and he e o e m (ε) cap u es his.
57
J. Risk Financial Manag. 2023,16, 429
Second model: ESG Disclosu e Le el =
β
0+
β
1
×
C.Capex#c. o al_go e nance +
β
2
×Fi m Size + β3×Liquidi y + β4×P oﬁ abili y + β6×Cons an .
Wi hin his model, ESG Disclosu e Le el is he dependen a iable and is measu ed by
a se o independen a iables, including Fi m Size, Liquidi y, P oﬁ abili y, and Boa d Size.
Mo eo e , he model includes an in e ac ion e m (C.Capex#c. o al_go e nance) o examine
how co po a e go e nance mode a es he associa ion be ween capex and ESG disclosu e.
The explana o y a iables ha e coe ﬁcien s (
β
) ha indica e he e ec o a one-uni change
in each co esponding p edic o a iable on he ou come a iable (ESG Disclosu e Le el).
The model does no accoun o all he a ia ions in he ou come a iable, and he e o
e m (ε) cap u es his.
3.5. Add essing Endogenei y Conce ns
Add essing endogenei y conce ns is c ucial in eg ession analysis, pa icula ly when
he e exis s a co ela ion be ween he explana o y a iables and he e o e m. This
co ela ion can in oduce biases and ende he es ima es un eliable. In his s udy, a ious
app oaches a e adop ed o ackle endogenei y conce ns, he eby enhancing he obus ness
o he ﬁndings. To add ess endogenei y, we use lagged a iables o capex and ESG
disclosu e and ﬁxed e ec s models ollowing a speciﬁc app oach o con ol o unobse able
he e ogenei y. By inco po a ing hese me hods, we can accoun o he empo al associa ion
amongs a iables, add ess po en ial endogenei y issues caused by omi ed a iable bias,
and con ol o unobse able he e ogenei y. Th ough hese app oaches, we aim o mi iga e
he po en ial biases in oduced by endogenei y, ensu ing he c edibili y and dependabili y
o ou esea ch ﬁndings.
4. Empi ical Resul s
4.1. Desc ip i e Analysis and Resul s
Table 1 p esen s he desc ip i e s a is ics o he s udy a iables. The sample consis s o
3294 obse a ions o ESG disclosu e le el, which has a mean o 50.473 and a ies om 0.99
o 94.35. The capi al expendi u e (Capex) has 3995 obse a ions, wi h a mean o 10.084 and
a ange o 3.689 o 15.932. Among he con ol a iables, Fi m Size has he la ges numbe
o obse a ions (5829), wi h a mean o 13.884 and a low s anda d de ia ion o 1.918. The
Liquidi y has 3078 obse a ions, wi h a mean o 1.672 and a wide a ia ion om 0.053 o
29.27. The P oﬁ abili y (ROA) has 4307 obse a ions, wi h a mean o 0.06 and a ange o
−
0.853 o 0.345. The Boa d Size has 6421 obse a ions, wi h a mean o 7.555, a minimum o
3, and a maximum o 12. The Boa d Di e si y has 3287 obse a ions, wi h a mean o 23.433
and a ange o 0 o 66.67. The Independen Boa d has 3296 obse a ions, wi h a mean o
63.085 and a a ia ion om 17.65 o 100. The Audi Commi ee Non-Execu i es has 3266
obse a ions, wi h a mean o 98.39 and a ange o 20 o 100.
Table 1. Desc ip i e S a is ics.
Va iable Obs Mean S d. De . Min Max
ESG Sco e 3294 50.473 19.106 0.99 94.35
ln Capex 3995 10.084 2.377 3.689 15.932
Fi m Size 5829 13.884 1.918 3.912 22.032
Liquidi y 3078 1.672 1.492 0.053 29.27
ROA 4307 0.06 0.096 −0.853 0.345
Boa d Size 6421 7.555 2.48 3 12
Boa d Di e si y 3287 23.433 12.57 0 66.67
Independen Boa d 3296 63.085 17.353 17.65 100
Audi Commi ee
Non-Execu i es 3266 98.39 5.955 20 100
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J. Risk Financial Manag. 2023,16, 429
4.2. Pai wise Co ela ions
Table 2 epo s he pai wise co ela ion coe ﬁcien s amongs he s udy a iables, in-
cluding he ESG Sco e, capi al expendi u e (Capex), and he con ol a iables, such as Fi m
Size, Liquidi y, P oﬁ abili y (ROA), Boa d Size, Boa d Di e si y, Independen Boa d, and
Audi Commi ee Non-Execu i es. The co ela ion analysis shows some no able ﬁndings
be ween he a iables. The ESG Sco e has a mode a e posi i e co ela ion (0.514) wi h
Capex, indica ing a posi i e associa ion be ween highe ESG Sco e and highe capi al
expendi u e. This sugges s ha companies wi h highe capi al expendi u e end o disclose
mo e ESG in o ma ion. Among he con ol a iables, ﬁ m size has a s ong posi i e co e-
la ion (0.572) wi h he ESG Sco e, implying ha la ge ﬁ ms ha e highe ESG disclosu e
le els, and a s ong posi i e co ela ion (0.675) wi h Capex, implying ha la ge ﬁ ms ha e
highe capi al expendi u e. Liquidi y has a weak nega i e co ela ion (
−
0.108) wi h he
ESG Sco e, implying ha highe liquidi y le els a e ela ed o lowe ESG disclosu e le els.
Likewise, P oﬁ abili y (ROA) has a weak nega i e co ela ion (
−
0.101) wi h he ESG Sco e,
implying ha mo e p oﬁ able companies end o disclose less ESG in o ma ion. Rega ding
he boa d- ela ed a iables, Boa d Size has a mode a e posi i e co ela ion (0.465) wi h he
ESG Sco e, implying ha la ge boa ds a e ela ed o highe ESG disclosu e le els. How-
e e , Independen Boa d has a e y weak posi i e co ela ion (0.021) wi h he ESG Sco e,
implying ha he e is no signiﬁcan associa ion be ween he p opo ion o independen
boa d membe s and he ESG disclosu e le el. The Boa d Di e si y a iable has a weak
posi i e co ela ion (0.277) wi h he ESG Sco e, implying ha mo e di e se boa ds may be
ela ed o highe ESG disclosu e le els. The Audi Commi ee Non-Execu i es a iable
has a e y weak posi i e co ela ion (0.089) wi h he ESG Sco e, implying ha he e is no
signiﬁcan associa ion be ween he p opo ion o non-execu i es on he audi commi ee
and he ESG disclosu e le el.
Table 2. Pai wise co ela ions.
Va iables (1) (2) (3) (4) (5) (6) (7) (8) (9)
(1) ESG Sco e 1.000
(2) Capex 0.514 1.000
(3) Fi m Size 0.572 0.675 1.000
(4) Liquidi y −0.108 −0.114 −0.068 1.000
(5) P oﬁ abili y (ROA) −0.101 −0.120 −0.153 0.160 1.000
(6) Boa d Size 0.465 0.423 0.509 −0.058 −0.070 1.000
(7) Boa d Di e si y 0.277 0.081 0.134 −0.069 0.036 −0.035 1.000
(8) Independen Boa d 0.021 0.209 0.123 −0.088 0.009 −0.209 0.337 1.000
(9) Audi Commi ee
Non-Execu i es 0.089 0.063 0.084 0.030 0.021 0.032 0.042 0.085 1.000
Ou da a analysis esul s, which aim o es he hypo heses o ou s udy, a e p esen ed
in his sec ion. The da a do no exhibi signiﬁcan mul icollinea i y, as indica ed by he weak
co ela ion among he independen and con ol a iables. This esul is also suppo ed by
he a iance inﬂa ion ac o s (VIFs), which a e wi hin he accep able h eshold. The absence
o mul icollinea i y, as implied by he VIF alues, inc eases he eliabili y and alidi y o
ou ﬁndings.
4.3. Reg ession Analysis, Findings, and Discussion
This s udy employed a mul i a ia e analysis o explo e he associa ion among ESG
Sco es, capi al expendi u e (Capex), and a ious o he con ol a iables. The s udy ocused
on non-ﬁnancial companies lis ed in he FTSE All Sha e index in he UK, spanning om
2012 o 2021. In Table 3, ou eg ession models, namely OLS, andom e ec s, ﬁxed e ec s,
and Tobi , we e applied o he da a. The OLS model was he baseline o compa ison, and
he andom e ec s model accoun ed o po en ial he e ogenei y ac oss di e en yea s. The
ﬁxed e ec s model con olled o unobse ed ime-in a ian ac o s ha may a ec he ESG
59

J. Risk Financial Manag. 2023,16, 429
Sco e. The Tobi model accoun ed o censo ing in he ESG Sco e a iable. The analysis
esul s showed ha Capex had a posi i e and signiﬁcan e ec on ESG Sco e ac oss all
ou eg ession models, wi h a coe ﬁcien o 0.425. This indica ed ha companies wi h
highe capi al expendi u e disclosed mo e ESG in o ma ion, implying highe s akeholde
engagemen .
Table 3. Reg essions.
Va iables OLS Random Fixed Tobi
ESG Sco e ESG Sco e ESG Sco e ESG Sco e
Capex 0.722 *** 0.722 *** 0.820 *** 0.722 ***
(0.246) (0.246) (0.246) (0.245)
Fi m Size 4.511 *** 4.511 *** 4.501 *** 4.511 ***
(0.341) (0.341) (0.340) (0.340)
Liquidi y −0.521 ** −0.521 ** −0.584 ** −0.521 **
(0.234) (0.234) (0.233) (0.233)
P oﬁ abili y (ROA) −0.811 −0.811 2.124 −0.811
(3.575) (3.575) (3.645) (3.566)
Boa d Size 0.663 *** 0.663 *** 0.713 *** 0.663 ***
(0.164) (0.164) (0.165) (0.164)
Boa d Di e si y 0.327 *** 0.327 *** 0.271 *** 0.327 ***
(0.0255) (0.0255) (0.0288) (0.0254)
Independen Boa d 0.196 *** 0.196 *** 0.197 *** 0.196 ***
(0.0232) (0.0232) (0.0232) (0.0232)
Audi Commi ee Non-Execu i es 0.237 *** 0.237 *** 0.256 *** 0.237 ***
(0.0426) (0.0426) (0.0428) (0.0425)
Cons an −67.12 *** −67.12 *** −69.14 *** −67.12 ***
(4.877) (4.877) (4.884) (4.865)
Obse a ions 1858 1858 1858 1858
R-squa ed 0.510 0.505
Numbe o Yea 10 10
S anda d e o s in pa en heses. *** p< 0.01, ** p< 0.05.
Based on s akeholde heo y, companies may in es mo e in capi al expendi u e o
imp o e hei epu a ion and legi imacy among hei s akeholde s, such as cus ome s,
employees, supplie s, egula o s, and socie y a la ge. By disclosing mo e ESG in o ma ion,
companies may signal hei commi men o social and en i onmen al esponsibili y and
hus inc ease hei s akeholde us and sa is ac ion. The s udy esul s also indica ed
ha he e ec o Capex on ESG Sco e was s onge o companies wi h highe go e nance
quali y. This indica ed ha go e nance mode a ed he associa ion be ween Capex and
ESG Sco e, inﬂuencing he deg ee o ESG disclosu e. Companies wi h highe go e nance
quali y may ha e mo e e ec i e boa d o e sigh and in e nal con ols, which may enable
hem o moni o and manage hei ESG isks and oppo uni ies mo e e ﬁcien ly. Mo eo e ,
companies wi h highe go e nance quali y may ha e mo e s akeholde p essu e and
expec a ions o disclose hei ESG in o ma ion, as hey may be subjec o highe sc u iny
and accoun abili y by hei s akeholde s.
Rega ding he con ol a iables, he ﬁndings showed ha Fi m Size, Liquidi y, P o -
i abili y (ROA), Boa d Di e si y, Independen Boa d, and Audi Commi ee Non-Execu i es
had posi i e and signiﬁcan e ec s on ESG Sco e a 1%, implying ha companies wi h
la ge size, highe liquidi y, highe p oﬁ abili y (ROA), mo e di e se boa ds, highe p o-
po ion o independen boa d membe s, and highe p opo ion o non-execu i es on he
audi commi ee disclosed mo e ESG in o ma ion. On he o he hand, p oﬁ abili y (ROE)
had a nega i e and signiﬁcan e ec on ESG Sco e a 1%, indica ing ha mo e p oﬁ able
companies disclosed less ESG in o ma ion. This may be because mo e p oﬁ able companies
may ha e less incen i e o need o disclose hei ESG in o ma ion, as hey may al eady
enjoy a s ong ma ke posi ion and epu a ion.
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J. Risk Financial Manag. 2023,16, 429
4.4. Does Go e nance Ma e ?
Table 4 shows he mode a ing e ec o go e nance on he associa ion be ween capex
and ESG Sco e. The in e ac ion e m “c.ln_capex#c. o al_go e nance” has a posi i e and
signiﬁcan coe ﬁcien o 0.425 ac oss all ou eg ession models a he 99% conﬁdence le el.
This shows ha go e nance mode a es he associa ion be ween capex and ESG Sco e. This
ﬁnding can be explained by esou ce dependence heo y. This heo y sugges s ha ﬁ ms
in es in capi al expendi u e o acqui e and main ain aluable esou ces ha can imp o e
hei compe i i e ad an age and pe o mance (P e e and Salancik 1978). By doing so, hey
show hei commi men o inno a ion and g ow h, which may inc ease hei s akeholde
engagemen and sa is ac ion. Resou ce dependence heo y is ele an because i highligh s
he ole o capi al expendi u e in c ea ing alue and educing unce ain y o he ﬁ m and
i s s akeholde s, such as in es o s, cus ome s, supplie s, and egula o s (Hillman e al.
2009). Fo ins ance, capi al expendi u e can enhance he ﬁ m’s e ﬁciency, quali y, and
di e en ia ion, which can boos i s ma ke sha e and p oﬁ abili y. The mode a ing e ec o
go e nance in he associa ion be ween capex and ESG Sco e unde sco es he impo ance
o go e nance p ac ices in inﬂuencing ESG disclosu e. Companies ha in es mo e in
capi al expendi u e and ha e highe go e nance quali y a e likely o disclose mo e ESG
in o ma ion, which can posi i ely a ec hei epu a ion and legi imacy.
Table 4. Mode a ing e ec o go e nance.
Va iables OLS Random Fixed Tobi
ESG_Sco e ESG_Sco e ESG_Sco e ESG_Sco e
c.ln_capex#c. o al_go e nance 0.425 *** 0.425 *** 0.375 *** 0.425 ***
(0.0293) (0.0293) (0.0313) (0.0292)
Fi m Size 6.665 *** 6.665 *** 6.753 *** 6.665 ***
(0.190) (0.190) (0.190) (0.189)
Liquidi y −0.621 *** −0.621 *** −0.702 *** −0.621 ***
(0.241) (0.241) (0.240) (0.240)
P oﬁ abili y (ROA) 4.582 4.582 7.277 * 4.582
(3.668) (3.668) (3.721) (3.663)
Cons an −41.57 *** −41.57 *** −43.01 *** −41.57 ***
(2.854) (2.854) (2.864) (2.850)
Obse a ions 1858 1858 1858 1858
R-squa ed 0.474 0.468
Numbe o Yea 10 10
S anda d e o s in pa en heses. *** p< 0.01. * p< 0.1.
4.5. Robus ness Check
This s udy es ed he sensi i i y o i s ﬁndings ega ding he measu emen o p o -
i abili y. In his analysis, he p oﬁ abili y a iable was eplaced wi h ROE ( e u n on
equi y), which is ano he common measu e o p oﬁ abili y and he mul i a ia e eg es-
sion models we e ecalcula ed acco dingly. Table 5 shows he ou comes o his obus -
ness check, which demons a e a consis en and signiﬁcan e ec o he in e ac ion e m
“c.ln_capex#c. o al_go e nance” on ESG Sco e a 1%, wi h a coe ﬁcien o 0.404 ac oss
all ou eg ession models (OLS, andom e ec s ﬁxed e ec s Tobi ). This indica es ha
companies ha in es mo e in capi al expendi u e and ha e highe go e nance quali y
disclose mo e ESG in o ma ion. Impo an ly, his ﬁnding is consis en wi h he esul s
ob ained when using he o iginal p oﬁ abili y a iable (ROA), indica ing he obus ness
and eliabili y o he s udy’s conclusions in ela ion o a ia ions in he measu emen o he
key a iable. The analysis also conﬁ ms he posi i e and signiﬁcan e ec s o Fi m Size,
Liquidi y, Boa d Di e si y, Independen Boa d, and Audi Commi ee Non-Execu i es on
ESG Sco e a 1%.
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J. Risk Financial Manag. 2023,16, 429
Table 5. Robus ness check.
Va iables OLS Random Fixed Tobi
ESG_Sco e ESG_Sco e ESG_Sco e ESG_Sco e
c.Capex#c. o al_go e nance 0.404 *** 0.404 *** 0.351 *** 0.404 ***
(0.0272) (0.0272) (0.0291) (0.0272)
Fi m Size 6.889 *** 6.889 *** 6.971 *** 6.889 ***
(0.178) (0.178) (0.177) (0.177)
Liquidi y −0.588 *** −0.588 *** −0.629 *** −0.588 ***
(0.194) (0.194) (0.193) (0.194)
ROE 8.309 *** 8.309 *** 9.979 *** 8.309 ***
(2.596) (2.596) (2.603) (2.593)
Cons an −45.18 *** −45.18 *** −46.49 *** −45.18 ***
(2.652) (2.652) (2.650) (2.649)
Obse a ions 2066 2066 2066 2066
R-squa ed 0.480 0.477
Numbe o Yea 10 10
S anda d e o s in pa en heses. *** p< 0.01.
5. Discussion
5.1. Implica ions o he S udy’s Findings o Theo y and P ac ice
This esea ch ca ies a ious implica ions o bo h heo y and p ac ice, as i p o ides
new insigh s in o he associa ion be ween capi al expendi u e and ESG epo ing and
he mode a ing ole o go e nance in his ela ionship. This s udy also con ibu es o
he li e a u e on s akeholde heo y and esou ce dependence heo y, as i applies hese
amewo ks o explain he link be ween capex, go e nance, and ESG disclosu e. The s udy
has implica ions o companies, in es o s, and egula o s, as i o e s guidance on how
o inco po a e ESG conside a ions in o capex decisions and how o communica e ESG
pe o mance and impac o s akeholde s.
Implica ions o companies
: How capi al expendi u e can inﬂuence ESG disclosu e
s a egies and epu a ion managemen . This s udy sugges s ha companies can use capi al
expendi u e as a s a egic ool o enhance hei ESG disclosu e and epu a ion managemen .
By in es ing in capex ha shows hei commi men o inno a ion and g ow h, companies
can imp o e hei epu a ion and legi imacy among hei s akeholde s, such as cus ome s,
employees, supplie s, egula o s, and socie y a la ge. By disclosing mo e ESG in o ma ion,
companies can signal hei social and en i onmen al esponsibili y and pe o mance o
hei s akeholde s and hus inc ease hei us and sa is ac ion. This s udy also sugges s
ha companies should align hei capex decisions wi h hei go e nance p ac ices, as
go e nance can mode a e he associa ion be ween capex and ESG disclosu e. Companies
wi h highe go e nance quali y can disclose mo e ESG in o ma ion a e in es ing in capex
compa ed o companies wi h lowe go e nance quali y. This can enhance he c edibili y
and eliabili y o hei ESG disclosu e, as well as he esponsi eness and accoun abili y o
hei managemen o hei s akeholde s’ demands and p essu es.
Implica ions o in es o s
: How unde s anding he associa ion be ween capi al ex-
pendi u e and ESG disclosu e can in o m in es men decisions. This s udy sugges s ha
in es o s can use he associa ion be ween capi al expendi u e and ESG disclosu e as a
c i e ion o e alua ing he ﬁnancial pe o mance and alue o companies. By unde -
s anding how capex a ec s ESG disclosu e, in es o s can assess he g ow h po en ial and
sus ainabili y o companies, as well as hei isk exposu e and mi iga ion s a egies. This
s udy also sugges s ha in es o s should conside he go e nance quali y o companies,
as i can inﬂuence he deg ee o ESG disclosu e a e in es ing in capex. In es o s can
p e e companies wi h highe go e nance quali y, as hey disclose mo e ESG in o ma ion
a e in es ing in capex, compa ed o companies wi h lowe go e nance quali y. This can
p o ide mo e anspa ency and assu ance o in es o s, as well as mo e oppo uni ies o
engagemen and inﬂuence.
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J. Risk Financial Manag. 2023,16, 429
This s udy p o ides some c i e ia o indica o s o in es o s o e alua e he ﬁnancial
pe o mance and alue o companies based on hei capex, go e nance, and ESG disclosu e.
These include:
I
The le el o capex ela i e o sales o asse s, which indica es he g ow h s a egy o
in es men in ensi y o companies.
I
The le el o ESG disclosu e ela i e o pee s o benchma ks, which indica es he social
and en i onmen al esponsibili y o pe o mance o companies.
I
The quali y o go e nance p ac ices, such as boa d composi ion, o e sigh , indepen-
dence, di e si y, and accoun abili y, which indica es he s akeholde engagemen and
accoun abili y o companies.
I
The cos o capi al, such as cos o equi y o deb , which indica es he isk and e u n
expec a ions o in es o s and c edi o s.
Implica ions o egula o s
: How he ﬁndings can shape u u e egula o y policies
ela ed o ESG disclosu e and capi al alloca ion. This s udy sugges s ha egula o s
can use he ﬁndings o design and implemen e ec i e egula o y policies ela ed o
ESG disclosu e and capi al alloca ion. By ecognizing he posi i e associa ion be ween
capex and ESG disclosu e, egula o s can encou age companies o in es mo e in capex
ha suppo s hei social and en i onmen al goals and impac s. By acknowledging he
mode a ing ole o go e nance in his ela ionship, egula o s can also p omo e highe
go e nance s anda ds o companies, such as boa d composi ion, o e sigh , independence,
di e si y, and accoun abili y. By doing so, egula o s can os e a cul u e o anspa ency
and esponsibili y among companies and in es o s, as well as enhance hei s akeholde
ela ions and alue c ea ion.
This s udy p o ides some policies o s anda ds o egula o s o encou age o en o ce
highe le els o capex, go e nance, and ESG disclosu e among companies. These include:
I
P o iding incen i es o subsidies o companies o in es in capex ha suppo s hei
social and en i onmen al objec i es and impac s, such as ax b eaks, g an s, o loans.
I
Se ing minimum equi emen s o guidelines o companies o disclose hei ESG in-
o ma ion o hei s akeholde s, such as manda o y epo ing, disclosu e amewo ks,
o audi ing s anda ds.
I
Imposing sanc ions o penal ies o companies ha ail o comply wi h he capex,
go e nance, o ESG disclosu e egula ions, such as ﬁnes, suspensions, o delis ings.
I
C ea ing pla o ms o mechanisms o s akeholde dialogue and eedback on capex,
go e nance, and ESG disclosu e p ac ices, such as o ums, su eys, o a ings.
5.2. Implica ions o he Fu u e o ESG Disclosu e
This s udy also has implica ions o he u u e o ESG disclosu e, as i indica es
po en ial changes in ESG disclosu e p ac ices based on i s ﬁndings. This esea ch also
emphasizes he ole o capi al expendi u e as a ool o p omo ing sus ainabili y and
esponsible business p ac ices.
This s udy implies ha ESG disclosu e p ac ices may change in esponse o changes in
capex decisions and go e nance p ac ices. As companies in es mo e in capex ha eﬂec s
hei inno a ion and g ow h s a egies, hey may disclose mo e ESG in o ma ion ha
showcases hei social and en i onmen al impac s and pe o mance. As companies adop
highe go e nance s anda ds ha enhance hei s akeholde engagemen and accoun abili y,
hey may also disclose mo e ESG in o ma ion ha demons a es hei commi men o
sus ainabili y and esponsibili y. These changes may lead o mo e comp ehensi e, de ailed,
compa able, and eliable ESG disclosu es ha mee he expec a ions and needs o a ious
s akeholde s.
This s udy implies ha capi al expendi u e can play a key ole in p omo ing sus ain-
abili y and esponsible business p ac ices among companies. By in es ing in capex ha
suppo s hei social and en i onmen al objec i es and impac s, companies can c ea e
alue o hemsel es and hei s akeholde s. By disclosing mo e ESG in o ma ion ha
communica es hei social and en i onmen al esponsibili y and pe o mance, companies
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J. Risk Financial Manag. 2023,16, 374
s anda ds is o imp o e ﬁnancial s a emen s’ anspa ency and eliabili y wo ldwide and
acili a e c oss-bo de in es men s. Because o his global dimension, i is mo e di ﬁcul and
essen ial o de e mine he economic consequences o accoun ing s anda ds in he con ex
o ﬁnancial egula o y e o ms as an inc easing numbe o coun ies wi h di e en le els o
de elopmen adop IFRS (Ze 2012).
Examining hese e ec s has impo an economic and social implica ions o Eu opean
coun ies, which may impac he domes ic and in e na ional use s o accoun ing in o ma-
ion. The e o e, egula o s a e in e es ed in knowing whe he IFRS adop ion may ha e
con ibu ed o educing he cos o equi y capi al and, consequen ly, epo an inc ease in
ma ke e ﬁciency and liquidi y (Han e al. 2016). In es o s a e in e es ed in de e mining
whe he in o ma ion asymme y p oblems ha e educed since IFRS adop ion. This indi-
ca es dec eased in o ma ion acquisi ion and e iﬁca ion e o s, allowing o mo e e ﬁcien
in es men decisions (Diamond and Ve ecchia 1991; Ball 2006) and a po en ial inc ease in
c oss-bo de in es men (De Fond e al. 2011).
While p e ious s udies ha e documen ed he posi i e e ec s o IFRS implemen a ion
(i.e., educ ion in ﬁ ms’ cos o equi y capi al), empi ical e idence on he ole o speciﬁc
legal disclosu e equi emen s on hese ﬁnancial beneﬁ s is lacking. Hellman e al. (2018)
a gue ha non-compliance is signiﬁcan in bo h gene al and speciﬁc IFRS disclosu es.
The e o e, he ﬁndings based on IFRS adop ion canno be used o de e mine he e ec o
IFRS equi emen s on he le el o disclosu e. This c ea es a gap in he li e a u e ha we a -
emp o ﬁll by explici ly examining he ela ionship be ween ﬁ m-le el IFRS disclosu e and
i s impac on he cos o equi y capi al. This s udy sheds ligh on whe he IFRS disclosu e
equi emen s beneﬁ use s economically and con ibu e o he disclosu e o e load deba e.
The con ibu ions o his s udy a e wo- old. Fi s , s udying he impac o IFRS adop-
ion on he cos o equi y capi al can help in o m policy decisions on ﬁnancial epo ing and
accoun ing s anda ds. Second, he cos o equi y capi al is an impo an indica o o com-
panies because i eﬂec s he e u n in es o s equi e o compensa e o he isk associa ed
wi h in es ing in a pa icula company. The e o e, unde s anding he ela ionship be ween
IFRS and he cos o equi y capi al can ha e impo an implica ions o bo h companies
and policymake s.
Hence, his s udy assesses he e ec o IFRS on he cos o equi y capi al o a sample o
337 Eu opean ﬁ ms lis ed on STOXX 600 Eu ope in 17 Eu opean coun ies ha implemen ed
hese s anda ds be ween 1994 and 2022. To accoun o c oss-sec ional dependence among
he ﬁ ms in ou sample, we pe o m CD es s, as sugges ed by Pesa an (2021). Fu he mo e,
we use he GMM-sys em echnique o examine he ela ionship be ween IFRS adop ion and
he cos o equi y capi al. The ﬁndings om he analysis sugges ha he e is an in e se
ela ionship be ween IFRS disclosu e equi emen s and he cos o equi y capi al. In simple
e ms, companies ha adhe e o highe le els o IFRS disclosu e end o expe ience lowe
cos s o equi y capi al.
The emainde o his pape is o ganized as ollows: Sec ion 2 p o ides an o e iew
o he ele an heo e ical and empi ical li e a u e and p esen s he de elopmen o ou
hypo heses. Sec ion 3 de ails he sample da a and me hodology used. Sec ion 4 p esen s
he empi ical esul s. Sec ion 5 p esen s he main conclusions and some policy implica ions.
2. Li e a u e Re iew and Hypo hesis De elopmen
2.1. Theo e ical F amewo k
F om a heo e ical pe spec i e, sepa a ion o owne ship gi es ise o he need o be e
go e nance. Smi h (1776) highligh ed he agency p oblem by s a ing ha manage s should
conside o he people’s unds a he han hei own. He a gued ha manage s could no
look a e he unds as pa ne s we e in a pa ne ship. Acco ding o Be le and Means (1932),
small sha eholde s canno be a con olle in la ge co po a ions wi h dispe sed owne ship
because o high cos s and low e u ns (Ali e al. 2019).
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J. Risk Financial Manag. 2023,16, 374
In cases whe e accoun ing en o cemen mechanisms a e lacking, a company’s co -
po a e go e nance sys em and ﬁnancial epo ing incen i es, commonly e e ed o as
“co po a e cha ac e is ics”, may signiﬁcan ly impac he de e mina ion o incen i es o
disclosu es. Acco ding o agency heo y, he e is an agency ela ionship in which one pa y
(i.e., p incipal) delega es wo k o ano he (i.e., agen ) pe o ming ha wo k on behal o
he p incipal. Thus, he e is a sepa a ion o owne ship and con ol o he en i y, and i
may be expensi e o di ﬁcul o he p incipal o e i y wha he agen is doing because o
in o ma ion asymme y (Eisenha d 1989; Jensen and Meckling 1976).
The applica ion o co po a e go e nance p inciples is a moni o ing cos ha can be
used o cu b he in o ma ion asymme y caused by agency ela ionships. Fo ins ance,
Fama and Jensen (1983) claimed ha he ole o he boa d o di ec o s can be used as an
in o ma ion sys em o moni o sha eholde s’ oppo unism owa d op execu i es. Fu he ,
Eisenha d (1989) posi ed ha when he boa d p o ides quali y ﬁnancial in o ma ion
( h ough, o ins ance, compliance wi h IFRS disclosu e equi emen s), op execu i es a e
mo e likely o beha e consis en ly wi h sha eholde s’ in e es s.
Acco ding o Damak-Ayadi e al. (2020), he adop ion o IFRS o SMEs’ s anda ds
in a ious coun ies can be a ibu ed o wo main heo ies: he neo-ins i u ional heo y,
as p oposed by DiMaggio and Powell (1997), and he economic heo y o ne wo ks, as
p oposed by Ka z and Shapi o (1985). Acco ding o DiMaggio and Powell (1997), compa-
nies ha in e na ionalize hei ope a ions end o gain inc eased legi imacy in he eyes o
hei s akeholde s and he b oade business communi y. Déjean and Saboly (2006) u he
a gued ha his ques o o ganiza ional legi imacy plays a signiﬁcan ole in inﬂuencing
ﬁ ms o adop speciﬁc p ac ices o s anda ds, such as IFRS o SMEs. As a esul , ﬁ ms may
emb ace hese s anda ds no only o hei inhe en beneﬁ s bu also o align hemsel es
wi h p e ailing no ms and gain accep ance in hei in e na ional business engagemen s. As
highligh ed by Meye and Rowan (1977), o ganiza ions acing en i onmen al cons ain s
should ac i ely employ mechanisms o legi imacy. By doing so, hese o ganiza ions can
es ablish a a o able image and gain accep ance wi hin hei socie al and business en i-
onmen s. Adop ing mechanisms o legi imacy can in ol e emb acing widely ecognized
s anda ds, like IFRS, o showcase hei commi men o anspa ency, accoun abili y, and
esponsible ﬁnancial epo ing.
DiMaggio and Powell (1983) a gued ha legi imacy is achie ed h ough he concep
o “ins i u ional isomo phism”. They p oposed ha a coun y’s ull adop ion o IFRS can
be explained by h ee ypes o isomo phism. The ﬁ s is coe ci e isomo phism, which
e e s o he ins i u ional p essu es on economic ac o s o adop IFRS. Man za i e al. (2017)
deﬁned coe ci e p essu es as occu ing when ex e nal powe ul pa ies, such as he s a e
and o he cons i uen s upon which an o ganiza ion is dependen , o ce he adop ion o
an o ganiza ional p ac ice o elemen , usually by using sanc ions. On he o he hand,
Reichbo n-Kjenne ud e al. (2019) deﬁned coe ci e p essu e as he social p essu e o
ollow exis ing socie al no ms. They highligh ed ha no ms may be o mal o in o mal.
Fo mal coe ci e no ms a e based on laws and egula ions, while in o mal coe ci e p essu e
includes media and public expec a ions. The impe us behind he adop ion o IFRS can be
a ibu ed o he egula o y sys em and inﬂuen ial in e na ional ﬁnancing o ganiza ions,
such as he Wo ld Bank and In e na ional Mone a y Fund (IMF), as poin ed ou by Judge
e al. (2010).
Ano he ac o inﬂuencing he adop ion o IFRS is mime ic isomo phism, whe e o ga-
niza ions imi a e he p ac ices o mo e e ﬁcien coun e pa s when hey ace unce ain y in
hei en i onmen and ha e ambiguous objec i es. Meye and Rowan (1977) p oposed ha
o ganiza ions acing unce ain en i onmen s can e ec i ely and economically na iga e
hese challenges by adop ing a s a egy o imi a ing he beha io s o success ul o gani-
za ions. In simple e ms, when o ganiza ions encoun e unce ain ies o complexi ies in
hei ope a ing en i onmen , hey can inc ease hei chances o success by emula ing he
p ac ices and s a egies o es ablished and p ospe ous companies. By imi a ing success ul
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J. Risk Financial Manag. 2023,16, 374
o ganiza ions, hey can d aw upon p o en me hods and app oaches, educing he isks
associa ed wi h expe imen a ion and ial-and-e o .
Meye and Rowan (1977) sugges ed ha his imi a i e app oach allows o ganiza ions
o beneﬁ om he expe iences and lessons lea ned by o he s, enabling hem o adap
mo e e ﬁcien ly o dynamic ma ke condi ions and inc easing he likelihood o achie ing
a o able ou comes in hei own endea o s. Man za i e al. (2017) deﬁned mime ic
p essu es as occu ing “when an o ganiza ion a emp s o imi a e a mo e success ul e e en
o ganiza ion o imp o e upon he p ac ice o o he o ganiza ions”. Boolaky e al. (2020)
highligh ed ha “mime ic isomo phism a ises om he eplica ion o p ac ices ac oss
na ions, whe eby he e is a endency o emula e wha mo e success ul coun ies ha e done
o secu e beneﬁ s and social accep ance”.
Finally, no ma i e isomo phism signiﬁes he inﬂuence o uni e si ies and o he p o es-
sional o ganiza ions on ﬁ ms, leading hem owa d homogenei y (Hassan 2008). DiMaggio
and Powell (1997) u he s essed ha no ma i e isomo phism is closely associa ed wi h
a coun y’s le el o educa ion. Hassan e al. (2014) emphasized ha no ma i e p essu e
esul ing om he no ms and alues o he p o ession also inﬂuences he deg ee o which a
na ion will adop in e na ional bes p ac ices. Boolaky e al. (2018) sugges ed ha no ma-
i e isomo phism occu s when indi iduals a e ained unde simila educa ional sys ems
and end o engage in simila con en ional p ac ices; hey concluded ha a ﬁ m ha
d aws om a s anda d pool o p o essional s a would be able o imp o e i s sys ems and
p ac ices because hei abili y o ha monize and enhance accoun ing quali y may be g ea e .
The economic heo y o ne wo ks sugges s ha coun ies a e mo e inclined o adop
in e na ional s anda ds, like IFRS, when hey obse e hei economic pa ne s al eady
using hem. Acco ding o Ramanna and Sle en (2009), IFRS is pe cei ed as a commodi y
ha coun ies ha e he disc e ion o emb ace. The adop ion decision is inﬂuenced by
he ne wo k e ec , whe ein one coun y’s adop ion o IFRS encou ages o he s o ollow
sui , leading o a ne wo k o coun ies u ilizing he same s anda dized ﬁnancial epo ing
amewo k. The decision o adop in e na ional s anda ds like IFRS is d i en by wo c i ical
ac o s: he inhe en alue o he p oduc and he ne wo k e ec s i c ea es, as desc ibed by
Ka z and Shapi o (1985).
Ramanna and Sle en (2009) pu o wa d he idea ha ha monizing accoun ing p ac-
ices se es he pu pose o globalizing ading ne wo ks. They in oduced wo key concep s:
he “au a ky alue”, which ep esen s he inhe en alue o he p oduc (accoun ing s an-
da ds de eloped by he IASB), and he “synch oniza ion alue”, which eﬂec s he ne wo k
alue o he p oduc a ising om ha moniza ion wi h o he coun ies al eady using he
same s anda ds. Acco ding o he au ho s, a coun y should op o in e na ional s an-
da ds only when he combined beneﬁ s o bo h au a ky and synch oniza ion ou weigh he
ad an ages o s icking o local accoun ing s anda ds.
2.2. In o ma ion Disclosu e and Cos o Equi y Capi al
Whe he ﬁ ms beneﬁ om disclosu e is one o he mos c i ical issues in cu en
accoun ing esea ch. In pa icula , hese beneﬁ s may a ise om he educed cos o equi y
capi al b ough abou by companies’ inc eased disclosu e o accoun ing in o ma ion. In
ecen yea s, se e al heo e ical s udies ha e ocused on he ela ionship be ween he cos
o equi y capi al and disclosu e.
F om a heo e ical poin o iew, i has been a gued ha disclosu e educes in o ma ion
asymme y and, consequen ly, he cos o equi y capi al o companies by educing bid/ask
sp eads (Amihud and Mendelson 1986) o by inc easing demand o a company’s sha es
(Diamond and Ve ecchia 1991). Ano he ad an age o imp o ing he quali y o in o ma ion
is ha i educes he es ima ion isk o po en ial in es o s ega ding he pa ame e s o a
s ock’s u u e pe o mance. Indeed, in es o s a e expec ed o assign g ea e sys ema ic isk
o poo ly in o med asse s a he han highly in o med ones (Cla kson e al. 1996).
Al hough many a gumen s a o accoun ing in o ma ion quali y and i s posi i e
impac on he cos o equi y capi al, heo e ical discussions emain open. Thus, one o
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J. Risk Financial Manag. 2023,16, 374
he mos con o e sial cen al ques ions in heo e ical li e a u e is whe he he e ec s o
in o ma ion a e di e siﬁed o no . Easley and O’Ha a (2004) p oposed a model o a ional
expec a ions in which in o ma ion can inﬂuence a company’s cos o equi y capi al, which
is compa ible wi h he logic o non-di e siﬁca ion. Indeed, a company can inﬂuence i s cos
o equi y capi al by ac ing on he accu acy and quan i y o in o ma ion made a ailable o
i s in es o s. Fu he mo e, he au ho s belie e ha his objec i e can be achie ed h ough a
company’s choice o accoun ing s anda ds and disclosu e policies.
In hei s udy, Lambe e al. (2007) de ised a me hodology ha es ablishes a connec-
ion be ween accoun ing in o ma ion and he cos o equi y capi al. Thei p ima y objec i e
was o examine whe he he quali y o a company’s accoun ing in o ma ion is mi o ed in
he cos o i s equi y capi al. Th ough his app oach, he au ho s e ec i ely demons a ed
ha he quali y o accoun ing in o ma ion has a dual impac on a company’s cos o equi y
capi al. Fi s ly, he quali y o accoun ing in o ma ion di ec ly inﬂuences a company’s cos
o equi y capi al by shaping ma ke playe s’ pe cep ions o he dis ibu ion o u u e cash
ﬂows. Secondly, he quali y o accoun ing in o ma ion also has an indi ec impac on a
company’s cos o equi y capi al h ough ac ual decisions made based on ha in o ma ion.
Decisions aken by he company, which may al e he dis ibu ion o u u e cash ﬂows, can
u he a ec he cos o equi y capi al.
In se e al empi ical s udies, he ela ionship be ween in o ma ion disclosu e and in-
o ma ion asymme y/sha ing cos s a ies acco ding o he ype o ﬁ m, ype o disclosu e,
and measu e o in o ma ion asymme y (Bo osan 1997; Leuz and Ve ecchia 2000; Bo osan
and Plumlee 2002; F ancis e al. 2008). Fu he mo e, he e ec s o manda o y IFRS adop ion
on equi y cos s sugges ha IFRS adop ion can educe equi y cos s in coun ies wi h s ong
en o cemen and in es o p o ec ion mechanisms (Daske e al. 2008; Li 2010; Pe sakis and
Ia idis 2017).
In hei esea ch in ol ing a sample o 307 Spanish-lis ed companies om 1999 o
2009, Cas illo Me ino e al. (2014) conduc ed a ocused coun y-le el analysis using OLS
eg ession analysis. The dependen a iable, he cos o equi y capi al, was es ima ed using
he p oxy p oposed by Eas on (2004). The au ho s disco e ed ha Spanish-lis ed companies
expe ienced a subs an ial dec ease in hei cos o equi y capi al ollowing he compulso y
adop ion o IFRS in 2005. This educ ion in he cos o equi y capi al emained signiﬁcan
e en a e accoun ing o a ious ﬁ m-speciﬁc isk ac o s and ma ke - ela ed a iables
ha could po en ially inﬂuence he cos o equi y. Thus, inc eased ﬁnancial disclosu e,
imp o ed compa abili y o in o ma ion, and changes in legal and ins i u ional en o cemen
appea o ha e a join e ec on he cos o equi y capi al, leading o a sha p dec ease in
expec ed e u ns on equi y.
Houqe e al. (2016) conduc ed a s udy examining he impac o IFRS adop ion on he
cos o equi y capi al o lis ed companies in New Zealand. Thei esea ch was based on a
sample o 290 ﬁ m-yea obse a ions spanning wo pe iods: 1998–2002 and 2009–2013. The
au ho s epo ed a signiﬁcan nega i e associa ion be ween IFRS adop ion and he cos o
equi y capi al, sugges ing ha IFRS is a highe -quali y se o accoun ing s anda ds han
p e ious New Zealand GAAP. Thei s udy p o ides empi ical e idence on he impac o
IFRS adop ion on he cos o equi y capi al o New Zealand companies and suppo s he
ﬁndings o p e ious s udies on Eu opean companies.
In he case o B azilian ﬁ ms, Ga sios e al. (2016) assessed he impac o IFRS adop ion
on he cos o equi y capi al o 1325 B azilian public companies o e he pe iod 2004–2013
using Di e ence-In-Di e ence (DID) analysis, which compa es he esul s o ﬁ ms ha
olun a ily adop ed IFRS wi h hose ha adop ed IFRS a e he manda o y adop ion
pe iod. Thei esul s indica e ha IFRS adop ion did no educe equi y cos s in B azil.
Simila ly, Da Sil a and Na di (2017) s udied he impac o IFRS adop ion on B azilian ﬁ ms’
cos o equi y capi al using DID and GMM app oaches o 2010 and 2011. Thei esul s
show ha an inc ease in in o ma ion con ibu es o a educ ion in asymme ic in o ma ion
and ha a mo e e ﬁcien alloca ion o esou ces educes he cos o equi y capi al. These
esul s suppo he hypo hesis o inc eased ea nings quali y a e IFRS adop ion.
73
J. Risk Financial Manag. 2023,16, 374
Sanjaya e al. (2017) a emp ed o analyze and compa e he cos o equi y capi al
be o e and a e he adop ion o IFRS on he ﬁnancial ins umen o ﬁnancial accoun ing
s anda ds (PSAK) o banking companies lis ed on he Indonesian s ock exchange o he
pe iod 2008–2009 be o e IFRS adop ion and 2013–2014 a e IFRS adop ion. The esul s
o his s udy p o e ha he cos o equi y capi al was lowe a e IFRS adop ion on ﬁ-
nancial ins umen s o ﬁnancial accoun ing s anda ds o banking companies lis ed on
he Indonesian s ock exchange. Thus, IFRS adop ion educes equi y cos s, impac s he
educ ion o non-pe o ming loans, inc eases he loan- o-deposi a io, and inc eases he
ne in e es ma gin.
Fo a sample o 1658 ﬁ m-yea s om companies lis ed on he KSE and KOSDAQ om
2000 o 2013, Kim and Ryu (2018) s udied he e ec o manda o y IFRS adop ion on he
cos o equi y capi al, s a ing om i s manda o y in oduc ion in 2011 using he a e age
implied cos o equi y capi al alues p esen ed by Claus and Thomas (2001), Gebha d
e al. (2001), Eas on (2004), and Ohlson and Jue ne -Nau o h (2005). Thei esul s show
a signiﬁcan ly nega i e ela ionship be ween manda o y IFRS adop ion and he cos o
equi y capi al, hus dec easing he cos o equi y capi al.
No a away, De Mou a e al. (2020) conduc ed a s udy o in es iga e he impac o
manda o y IFRS adop ion on he cos o equi y capi al and cos o deb o a g oup o ﬁ ms
ope a ing in A gen ina, B azil, Chile, Mexico, and Pe u. The ﬁndings e eal ha e en a e
con olling o ﬁ m-le el epo ing incen i es, manda o y IFRS adop ion educes equi y
cos s. Addi ionally, he cos o deb expe ienced a signiﬁcan educ ion a e he IFRS
adop ion. These esul s sugges ha he enhanced disclosu e and compa abili y acili a ed
by IFRS s anda ds, compa ed wi h p e ious domes ic accoun ing s anda ds, mi iga ed
he in o ma ion asymme y p oblem and p oduced posi i e economic ou comes o ﬁ ms
ope a ing in La in Ame ica.
Fo hei pa , Saha and Bose (2021) examined he associa ion be ween IFRS disclosu e
equi emen s and he cos o equi y capi al o a sample o 157 Aus alian ﬁ ms. The au ho s
showed ha disclosu e equi emen s nega i ely a ec he cos o equi y capi al; hus, ﬁ ms
wi h highe IFRS disclosu e le els ha e a lowe cos o equi y capi al. Fu he mo e, he
s udy e ealed a nega i e ela ionship be ween IFRS disclosu e equi emen s and he cos s
o deb and equi y o he companies unde in es iga ion. These ﬁndings add aluable
insigh s o he ongoing discussion abou he compa a i e ad an ages and disad an ages
o IFRS disclosu e equi emen s. The implica ions o hese esul s a e signiﬁcan o
s anda d-se ing bodies, egula o s, and s akeholde s who ely on ﬁnancial s a emen s o
decision-making and analysis.
In a ecen s udy, using a me a-analysis o 56 empi ical s udies wi h 1265 e ec
sizes, Opa e e al. (2021) de e mined he impac o IFRS adop ion on ﬁnancial epo ing
compa abili y, ma ke liquidi y, cos o equi y capi al, and cos o deb . Thei esul s show
ha IFRS adop ion signiﬁcan ly imp o es compa abili y, inc eases ma ke liquidi y, and
educes he cos o equi y capi al bu has no signiﬁcan e ec on he cos o deb . The esul s
also show ha manda o y IFRS adop ion has a g ea e impac han olun a y adop ion.
Howe e , o he cos o deb , olun a y adop ion esul s in a educ ion in he cos o deb
bu he impac o manda o y adop ion on he cos o deb is no signiﬁcan .
2.3. Financial Ins umen s and Cos o Equi y Capi al
The isks associa ed wi h ﬁnancial ins umen s a e conside ed one o he mos impo -
an aspec s es ed om he pe spec i e o economic heo y, along wi h he cos o capi al.
Despi e he complexi y o ﬁnancial ins umen s, hey a e applied by all companies, includ-
ing accoun s ecei able and payable as ﬁnancial ins umen s ha mus be disclosed in
e e y small o la ge company (Lim and Foo 2017). In addi ion, he in oduc ion o ﬁnancial
ins umen s equi es he disclosu e o de ailed in o ma ion abou he isks a ising om he
company’s ac i i ies, such as liquidi y isk, ma ke isk, and c edi isk (Jacobs 2009).
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J. Risk Financial Manag. 2023,16, 374
The impo ance o ﬁnancial ins umen s in he implemen a ion o IFRS and hei
di e en e ec s on he quali y o ﬁnancial epo ing, in es o s, and capi al ma ke s ha e
caused conﬂic s be ween esea che s, accoun an s, and audi o s. In addi ion, he ai
alue deba e con inues o be a con o e sial opic among academics in e ms o i s ac ual
impac on he business domain, as ai alue is a he co e o ﬁnancial ins umen s in IFRS
implemen a ion; hus, IFRS 7 b ings he ai alue deba e o he o e on o disclosu e
equi emen s (Palea 2014; Kasyan e al. 2017). Mo eo e , IFRS 7 add esses he hedging
policies used by companies in e ms o cash ﬂows, ai alue, and o eign in es men s,
as well as he ele an quan i a i e o quali a i e in o ma ion ha in es o s and lende s
conside impo an in assessing he si ua ion o hese companies (Deloi e 2017; G osu and
Chelba 2019).
Acco ding o Yamani e al. (2021), IFRS 7 ﬁnancial ins umen disclosu es help o
educe in o ma ion asymme y. A be e disclosu e implies ha companies adhe e o
he app op ia e applica ion o IFRS s anda ds and mee hei equi emen s. This shows
ha companies a e commi ed o ules and egula ions, he eby imp o ing hei le el o
anspa ency. Mo eo e , p o iding in es o s wi h comp ehensi e ﬁnancial in o ma ion on
ﬁnancial ins umen s enables companies o be e unde s and hei e ms and condi ions.
This, in u n, can lead o a educ ion in isk es ima es and an imp o emen in capi al ma ke
liquidi y. As a esul , in es o s and sha eholde s will beneﬁ om g ea e conﬁdence
and close ela ionships wi h companies, po en ially leading hem o demand a lowe
cos -o -capi al a io.
Financial in e media ies a e gene ally e y posi i e abou IFRS s anda ds when as-
sessing po en ial bo owe s. These s anda ds p omo e anspa ency, consis ency, and
compa abili y, making i easie o make in o med lending and isk assessmen decisions,
hus os e ing a heal hie ﬁnancial ecosys em o bo h bo owe s and lende s.
Balancing he beneﬁ s and cos s o be e -quali y disclosu e is c ucial o companies.
S iking he igh balance can help businesses build us wi h s akeholde s, imp o e
decision-making, and os e long- e m sus ainable g ow h while mi iga ing po en ial isks
and esou ce bu dens. Regula o y amewo ks and indus y s anda ds play a c i ical ole
in guiding companies owa d esponsible and meaning ul disclosu e p ac ices.
This amewo k has allowed us o deepen he complexi ies o disclosu e p ac ices
and hei implica ions. Taking in o accoun bo h posi i e ou comes, such as inc eased
anspa ency; be e isk managemen and access o capi al; and associa ed cos s such as
esou ce alloca ion, compe i i e disad an age, and legal isks, his esea ch can p o ide a
mo e nuanced analysis o he subjec .
2.4. Hypo hesis De elopmen
The ela ionship be ween manda o y IFRS disclosu es and he cos o equi y capi al has
been neglec ed, despi e i s po en ial signiﬁcance in he disclosu e o e load p oblem deba e.
Some s udies ha e examined he impac o IFRS disclosu e on ﬁ ms’ cos o equi y capi al
and a e essen ial o p o iding addi ional in o ma ion and cla i ying ﬁ ms’ accoun ing
policies and calcula ions. Howe e , he e needs o be mo e esea ch on he associa ion
be ween manda o y IFRS disclosu e and he cos o equi y capi al, pa icula ly in he
con ex o he disclosu e o e load deba e. Disclosu e unde he a ious IFRS measu emen
and ecogni ion equi emen s should help educe he cos o equi y capi al. Thus, based on
his easoning, we p opose he ollowing hypo hesis:
H1. The le el o IFRS disclosu e educes companies’ cos o equi y capi al exposu e.
In o he wo ds, he mo e a company discloses unde IFRS, he lowe i s cos o equi y
capi al. This hypo hesis can be es ed by he collec ion o da a on a sample o ﬁ ms and by
analyzing he ela ionship be ween he cos o equi y capi al and he le el o IFRS disclosu e.
I is impo an o no e ha p o ing causali y be ween wo a iables is only some imes
possible and o he ac o s may inﬂuence he esul s.
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3. Me hodology
3.1. Sample and Da a
As he manda o y ansi ion o IFRS has conce ned lis ed companies loca ed in he
Eu opean Union, we ollowed E z e al. (2021) by es ing he e ec o IFRS on he cos o
equi y capi al by conside ing 337 ﬁ ms lis ed on he STOXX Eu ope 600 o e he pe iod
1994–2022, i.e., a o al o 9773 ﬁ m-yea obse a ions. This s ock ma ke index includes he
600 la ges ma ke capi aliza ions in 17 Eu opean coun ies: Aus ia, Belgium, Denma k,
Finland, F ance, Ge many, I eland, I aly, Luxembou g, he Ne he lands, No way, Poland,
Po ugal, Spain, Sweden, Swi ze land, and he Uni ed Kingdom. This choice is mo i a ed
by he idea ha , al hough each company has been a ec ed di e en ly by he ansi ion
o IFRS, hese impac s a e homogeneous wi hin a single indus y. The e o e, we conside
se en indus ies ep esen ed in STOXX Eu ope 600 wi h di e en cha ac e is ics. Following
Lo ﬁ e al. (2022, 2023), he selec ed indus ies we e au omo i e, heal hca e, ood and
be e age, and banking.
The companies selec ed we e all lis ed on STOXX Eu ope 600 when hey published
hei ﬁnancial s a emen s unde IFRS S anda ds, mainly in 2004 o 2003. As he impac
o IFRS may di e depending on he sec o o ac i i y and he en i onmen in which he
company ope a es, i is c ucial o conside his in ou analysis and di e si y he coun ies
whe e he companies we e headqua e ed a he ime o his accoun ing ansi ion as much
as possible. In o ma ion on he selec ed companies by indus y sec o and head o ﬁce
coun y is summa ized in Table 1.
Table 1. Dis ibu ion o he ﬁnal sample by sec o o ac i i y.
Numbe o Sec o s Sec o o Ac i i y Numbe o Fi ms Pe cen age
1 Consume goods 35 10.39%
2 Technology 27 8.01%
3 Heal h 49 14.54%
4 Oil and Gas 22 6.53%
5 Indus y 154 45.70%
6 Telecommunica ions 18 5.34%
7 Consume Se ices 32 9.50%
To al 337 100%
3.2. Cos o Equi y Capi al Measu e
The a iable chosen o he s a is ical analysis is he cos o equi y capi al, deﬁned as
he oppo uni y cos ha e alua es in es o s’ in e es in in es ing hei money in a company
a he han elsewhe e. I ep esen s he minimum a e o e u n ha mus be gene a ed by
he company’s in es men s in o de o i o mee he p oﬁ abili y equi emen s o sha e-
holde s and c edi o s. The e o e, o es ima e he cos o equi y capi al, e e ing o Houqe
e al. (2016), we use he modiﬁed P ice–Ea nings–G ow h (PEG) a io model p oposed
by Eas on (2004). Modiﬁca ion o he s anda d PEG a io model in ol es inclusion in he
model o a di idend pe sha e o ecas one yea in ad ance. Bo osan and Plumlee (2005)
conclude ha es ima es o he modiﬁed PEG a io model p o ide he bes measu e o he
cos o equi y capi al in a coun y wi h s ong in es o p o ec ion because i domina es he
o he al e na i es in ha i is consis en ly and p edic ably linked o a ious isk measu es
such as in o ma ion isk, le e age isk, esidual isk, ma ke isk, and g ow h. Thus, gi en
s ong in es o p o ec ion, we use he modiﬁed PEG a io model as ollows:
Ke=eps +2−eps +1+Ke∗Di +1
P o Ke=eps +2−eps +1
P −Di +1
(1)
whe e
Ke
is he cos o equi y capi al,
eps +1
is he expec ed ea nings pe sha e a he
one-yea ho izon,
eps +2
is he expec ed ea nings pe sha e a he wo-yea ho izon,
Di +1
is he one-yea -ahead di idend o ecas , and P is he p ice pe sha e a yea -end.
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J. Risk Financial Manag. 2023,16, 374
3.3. Es ima ion Technique
To es he e ec o IFRS adop ion on he cos o equi y capi al o 337 ﬁ ms om
17 Eu opean coun ies be ween 1994 and 2022 chosen om STOXX Eu ope 600-lis ed
companies, we adop he ollowing eg ession equa ion, which includes a se o company-
speciﬁc con ols o o he ac o s ha may a ec a company’s cos o equi y capi al. We use
he IFRS a iable, which indica es he change in he accoun ing amewo k ollowing he
manda o y adop ion o IFRS in Eu ope since 2005; i akes 0 be o e he manda o y adop ion
o IFRS in 2005 and 1 a e he manda o y adop ion o IFRS. Conce ning Houqe e al. (2016),
and he GMM-sys em sugges ed by A ellano and Bo e (1995) as well as Blundell and
Bond (1998), he model can be w i en as ollows:
Kei =β0+β1Kei −1+β2IFRSi +β3Sizei +β4BMRi +β5Be ai +β6FLi +β7ROEi +εi (2)
Le
Kei
ep esen he cos o equi y capi al o ﬁ m “i” i in yea “ ”. Addi ionally, le
IFRS be a dicho omous a iable ha akes he alue o 1 when he ﬁnancial s a emen s o
he ﬁ m “i” a e p epa ed in acco dance wi h IFRS in a yea “ ”, and 0 o he wise. Size is
measu ed by he na u al loga i hm o he cu en yea ’s o al asse s o a ﬁ m “i” in a yea
“ ”. BMR is he a io o he ma ke alue o equi y o book alue o equi y o a ﬁ m “i” in
a yea “ ”. Be a is he sys ema ic isk o ﬁ m i in yea . FL ep esen s he ﬁ m’s ﬁnancial
le e age, which is he a io o o al Deb o Sha eholde s’ Equi y o a ﬁ m “i” in a yea
“ ”. ROE is he e u n on equi y, which measu es ﬁnancial pe o mance and is calcula ed
by di iding ne income by sha eholde s’ equi y o a ﬁ m “i” in a yea “ ”.
εi
is an e o
e m assumed o e i y he s a is ical p ope ies o whi e noise ega dless o a ﬁ m “i” o a
pe iod “ ”. We summa ize all he a iables in Table 2.
Table 2. Va iable desc ip ion.
Va iables Deﬁni ion
Ke Cos o Equi y Capi al
IFRS The dicho omous a iable ha is equal o 1 when he ﬁnancial s a emen s a e
p epa ed in acco dance wi h IFRS and 0 o he wise
Size
Measu ed by he na u al loga i hm o he cu en yea ’s o al asse s o ﬁ m i in yea
BMR
The a io o he ma ke alue o equi y o he book alue o equi y o ﬁ m i in yea
Be a The sys ema ic isk o ﬁ m i in yea
FL The a io o o al Deb o Sha eholde s’ Equi y o ﬁ m i in yea
ROE The e u n on equi y, which measu es ﬁnancial pe o mance and is calcula ed by
di iding ne income by he sha eholde s’ equi y o ﬁ m i in yea
To add ess po en ial bias and inaccu acies associa ed wi h using di e ence GMM
(A ellano and Bond 1991), A ellano and Bo e (1995) as well as Blundell and Bond (1998)
p opose a sys em o di e ence and le el eg essions. In he di e ence eg ession, he
ins umen s a e he lagged le els o he explana o y a iables, while in he le el eg ession,
he ins umen s a e he lagged di e ences o he explana o y a iables. These ins umen s
a e conside ed app op ia e unde he assump ion ha while he e migh be a co ela ion
be ween he le els o he explana o y a iables and he coun y-speciﬁc e ec , he e is no
co ela ion be ween hese a iables in he di e ences and coun y-speciﬁc e ec s.
The consis ency o he GMM-sys em es ima o elies on wo key aspec s: he alidi y
o he assump ion ha he e o e m is se ially unco ela ed and he alidi y o he
ins umen s. The es o he null hypo hesis o no ﬁ s -o de se ial co ela ion should be
ejec ed unde he iden iﬁca ion assump ion ha he e o is se ially unco ela ed, whe eas
he es o he null hypo hesis o no second-o de se ial co ela ion should no be ejec ed.
The e o e, o e alua e he model’s pe o mance and ins umen alidi y, we employ wo
diagnos ic es s p oposed by A ellano and Bo e (1995) and by Blundell and Bond (1998).
Addi ionally, we use he Hansen (1982) es s o o e -iden i ying es ic ions; i he null
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J. Risk Financial Manag. 2023,16, 374
hypo hesis canno be ejec ed, i would indica e ha he model is co ec ly speciﬁed and
he ins umen s a e alid.
4. Empi ical Resul s
4.1. Desc ip i e S a is ics
Be o e commencing he examina ion o a iables’ s a iona i y, coin eg a ion ela ion-
ship, c oss-sec ional dependence analysis, and model analysis, i is c ucial o ini ia e he
p ocess wi h a desc ip i e and g aphical analysis. This p elimina y analysis will se e as
he ounda ion o subsequen es ima ions and assessmen s.
Acco ding o he in o ma ion p esen ed in Table 3, he a iable “Ke” exhibi s he
ollowing desc ip i e s a is ics: The o e all mean o he a iable is 0.014, wi h a low median
alue o 0.005. The s anda d de ia ion is 0.719, and he minimum and maximum alues
a e
−
37.303 and 37.602, espec i ely. The dis ibu ion o he a iable is highly le -skewed,
as indica ed by he skewness alue o
−
7.179, which is less han 0. Addi ionally, he
dis ibu ion is s ongly pla yku ic, wi h a ku osis alue o 2079.617, which exceeds 0,
signi ying hea y ails and ex eme ou lie s. The da ase comp ises a o al o 9773 obse a-
ions. I is impo an o no e ha he dis ibu ion o he a iable “Ke” is non-no mal o he
en i e sample and demons a es no au oco ela ion. In addi ion, he ac ha he median is
low (0.5%) p o es once again ha he dis ibu ion is asymme ical and he e is a s ong
asymme y o in o ma ion conce ning his a iable Ke.
Table 3. Desc ip i e s a is ics o he a iables in he sample.
Va iables Ke IFRS Size BMR Be a FL ROE
Obse a ions 9773 9773 9773 9773 9773 9773 9773
Mean 0.014 0.621 15.598 3.231 0.893 0.583 19.436
S anda d de ia ion 0.719 0.485 1.990 10.008 0.973 0.205 76.295
Minimum −37.303 0 8.301 −548.090 −19.069 0.005 −3043.680
Maximum 37.602 1 21.010 204.570 8.322 2.693 2230.020
Median 0.005 1 15.750 2.380 0.880 0.587 15
Skewness −7.179 −0.497 −0.393 −25.591 −8.855 1.301 2.374
Ku osis 2079.617 1.247 2.949 1395.255 160.138 13.500 521.683
Ja que–Be a (JB) es 1.8 ×109- 252.6 7.9 ×1081.0 ×1074.8 ×1041.1 ×108
P obabili y JB 0.000 - 0.000 0.000 0 0 0
Bo n–B ei ung (BB) es 2.300 - 225.330 0.240 15.890 59.500 4.690
P obabili y BB 0.317 - 0.000 0.889 0.000 0.000 0.096
No es: BB e e s o Bo n and B ei ung’s (2016) se ial co ela ion es . JB e e s o Ja que and Be a’s (1987)
no mali y es .
Acco ding o he da a p esen ed, o he 9773 obse a ions, he a iable “IFRS” is
desc ibed by he ollowing s a is ics: The o e all mean o he a iable is 0.621 and he
median alue is 1. The s anda d de ia ion is 0.485, and he minimum and maximum alues
o he a iable a e 0 and 1, espec i ely. The dis ibu ion o he a iable “IFRS” is highly
le -skewed, as e iden om he nega i e skewness alue o
−
0.497, which is less han 0.
Mo eo e , he dis ibu ion is lep oku ic, wi h a ku osis alue o 1.247, which exceeds 0,
indica ing hea y ails and mo e ex eme alues.
A e global desc ip i e s a is ical in e p e a ion, we ﬁ s pe o med a uni oo es o
he a iables o he model. In his s ep, we ﬁ s es he null hypo hesis o c oss-sec ional
independence be ween indi iduals. De Hoyos and Sa aﬁdis (2006) emphasize he need and
signiﬁcance o conduc ing a c oss-sec ional dependence es when wo king wi h dynamic
panel da a. In pa icula , Sa aﬁdis and Robe son (2006) unde sco e ha he p esence o
c oss-sec ional dependence in he da a is c ucial o a oid inconsis encies in all es ima ion
p ocedu es. Hence, in his s udy, we explo e a ious dependence es s o ensu e he
eliabili y o ou analysis, as ci ed in Pesa an (2021). The p- alues associa ed wi h he
di e en CD es s a e below 0.05, sugges ing ha augmen a ion wi h cu en and lagged
c oss-sec ional a e ages adequa ely accoun s o c oss-sec ional dependence (see Table 4).
78
J. Risk Financial Manag. 2023,16, 374
Table 4. C oss-sec ion dependency es s.
Tes s Value P obabili y Decision
F iedman (1937) 888.479 0.000 Dependence
F ees (1995, 2004) 6.033 0.000 Dependence
Pesa an (2006) 89.162 0.000 Dependence
Pesa an (2015) 103.813 0.000 Dependence
Second, a e pe o ming he c oss-dependence es s ci ed by Pesa an (2021), we
examine he uni oo es s o he model a iables. In his s ep, we examine he uni oo
es s by wo gene a ions; he ﬁ s gene a ion is ep esen ed by Le in e al. (2002), Im e al.
(2003), as well as Had i (2000), while he second is ep esen ed by Pesa an (2003) and
Pesa an (2007) uni oo es s.
Fi s -gene a ion uni oo es s a e based on he assump ion ha he esiduals a e in e -
indi idually independen . This assump ion allows o he s aigh o wa d es ablishmen o
s a is ical dis ibu ions o es s, o en esul ing in asymp o ic o semi-asymp o ic no mal
dis ibu ions. In con as , second-gene a ion uni oo es s ypically depa om he
independence assump ion. These es s adop a comple ely di e en pe spec i e in which
co ela ions be ween indi iduals a e no conside ed nuisance pa ame e s. Ins ead, hey
p opose le e aging hese co-mo emen s o deﬁne new es s a is ics.
Acco ding o ﬁ s -gene a ion uni oo es s conduc ed by Le in e al. (2002), Im
e al. (2003), and Had i (2000) p esen ed in Table 5, he a iables in he model a e ei he
le el s a iona y o ﬁ s di e ence s a iona y o all a iables in he model. Howe e , o
he second-gene a ion es s o Pesa an (2003) and Pesa an (2007) p esen ed in Table 6, all
a iables a e s a iona y in he ﬁ s di e ence.
Table 5. The ﬁ s gene a ion o uni oo es s.
Va iables In Le el In Fi s Di e ence
LLC IPS Had i LLC IPS Had i
Ke −
54.564 ***
−
58.486 ***
15.152 *** −
88.892 ***
−
70.382 ***
−
18.036 ***
Size −
13.488 ***
6.497 *** 280.411 *** −
36.259 ***
−
46.823 ***
9.783 ***
BMR −6.273 *** −
13.312 ***
3.787 *** −
47.688 ***
−
57.280 ***
−
18.237 ***
Be a −
12.694 ***
−5.013 *** 184.773 *** −
38.816 ***
−
46.982 ***
1.178 ***
FL −
11.498 ***
−
10.209 ***
160.231 *** −
47.375 ***
−
53.455 ***
−2.446 ***
ROE −
12.678 ***
−
25.124 ***
92.294 *** −
47.286 ***
−
59.689 ***
−8.883 ***
No e: *** ep esen signiﬁcance a 1%.
We use he uni oo es wi h b eaks sugges ed by Ka a ias and Tza alis (2014) o
e i y he uni oo es s men ioned abo e. The esul s in Table 7 show ha he se ies
is s a iona y in le el o ﬁ s di e ence ela ed o ce ain b eaks in 1995, 1997, 2000, and
2021, ela ed o he Eu opean Mone a y Sys em c isis (1992–1993), Asian Financial c isis
(1997–1998), In e ne bubble c isis (2001), and COVID-19 c isis (2019–2020), espec i ely.
The e o e, i is necessa y o check o he exis ence o a coin eg a ing ela ionship be ween
he se ies.
Gi en ha he majo i y o a iables exhibi s a iona i y when analyzed in hei ﬁ s
di e ence, i becomes c ucial o in es iga e whe he a coin eg a ing ela ionship exis s
among hese a iables. G ange (1981) showed ha when a se ies is in eg a ed in o de
one ( hey become s a iona y a e he ﬁ s di e encing) bu hei linea combina ion is
al eady s a iona y wi hou di e encing, hey a e said o be coin eg a ed, which implies he
exis ence o a long- un ela ionship be ween he se ies (Mahmoodi and Mahmoodi 2016).
Based on he ou comes p esen ed in Table 8, which include a ious coin eg a ion es s like
hose by Kao (1999) and Ped oni (2004), he esul s indica e ha he p obabili y ob ained
om bo h es s alls below he 5% signiﬁcance h eshold. As a esul , we can in e ha he e
is a leas one coin eg a ing ela ionship among all he a iables included in ou model.
79
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au ho (s) and con ibu o (s) and no o MDPI and/o he edi o (s). MDPI and/o he edi o (s) disclaim esponsibili y o any inju y o
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87
Ci a ion: Aladwey, Laila Mohamed
Alshawad y, and Raghad
Abdulka im Alsudays. 2023. Does
he Cul u al Dimension Inﬂuence he
Rela ionship be ween Fi m Value and
Boa d Gende Di e si y in Saudi
A abia, Media ed by ESG
Sco ing? Jou nal o Risk and Financial
Managemen 16: 512. h ps://
doi.o g/10.3390/j m16120512
Academic Edi o : ¸S e an
C is ian Ghe ghina
Recei ed: 3 No embe 2023
Re ised: 2 Decembe 2023
Accep ed: 3 Decembe 2023
Published: 11 Decembe 2023
Copy igh : © 2023 by he au ho s.
Licensee MDPI, Basel, Swi ze land.
This a icle is an open access a icle
dis ibu ed unde he e ms and
condi ions o he C ea i e Commons
A ibu ion (CC BY) license (h ps://
c ea i ecommons.o g/licenses/by/
4.0/).
Jou nal o
Risk and Financial
Managemen
A icle
Does he Cul u al Dimension Inﬂuence he Rela ionship
be ween Fi m Value and Boa d Gende Di e si y in Saudi
A abia, Media ed by ESG Sco ing?
Laila Mohamed Alshawad y Aladwey 1,2,* and Raghad Abdulka im Alsudays 1
1Depa men o Accoun ing, Imam Mohammad Ibn Saud Islamic Uni e si y (IMSIU),
Riyadh 11432, Saudi A abia; [email p o ec ed]
2Depa men o Accoun ing, Tan a Uni e si y, Gha bia 31521, Egyp
*Co espondence: [email p o ec ed]
Abs ac :
The sca ci y o emale di ec o s on Saudi boa ds is linked o cul u al and social ba ie s
deeply oo ed in adi ional masculine no ms. Ou s udy in es iga es he media ing ole o ESG
sco es in he ela ionship be ween boa d gende di e si y and ﬁ m alue wi hin he Saudi con ex .
The S uc u al Equa ion Model (SEM) was u ilized based on a sample o 54 Saudi-lis ed ﬁnancial
companies on (Tadawul) du ing 2021–2022. The s udy un eiled a nega i e co ela ion be ween
emale di ec o p esence and Saudi ﬁ m alue. This associa ion is a ibu ed o he p e ailing male-
domina ed Saudi socie al no ms, whe e boa ds wi h mo e emale membe s may hesi a e o p io i ize
pe o mance-d i en ac ions due o conce ns abou hei pe cei ed legi imacy wi hin adi ional
gende oles. Con e sely, a posi i e co ela ion was obse ed be ween emale di ec o p esence
and ESG sco es, aligning wi h exis ing esea ch highligh ing he ole o boa d gende di e si y in
imp o ing sus ainabili y pe o mance. The sus ainabili y amewo k p e ails o e he inﬂuence
o gende di e si y, ully in eg a ing i wi hin he b oade con ex o sus ainabili y o enhance he
alue o Saudi companies. Ou esul s a e consis en when conside ing al e na i e measu es o ﬁ m
alue. Ou ﬁndings o e aluable insigh s o in es o s assessing boa d gende di e si y’s impac
on company alue and emphasize he ole o gende di e si y in enhancing sus ainabili y. They
sugges ha g ea e emale ep esen a ion on boa ds is i al o ESG sco e imp o emen , p omo ing
sus ainable ini ia i es and o e all ﬁ m alue. This calls o policymake s o p omo e sus ainabili y
disclosu es and es ablish guidelines o inc eased emale boa d pa icipa ion, conside ing he absence
o manda o y quo as.
Keywo ds:
gende di e si y; ﬁ m alue; ESG disclosu e; Saudi A abia; masculini y— eminis cul-
u al dimension
1. In oduc ion
A b oad s eam o esea ch has consis en ly a ﬁ med he posi i e impac o gende
di e si y in co po a e boa ds on ﬁ m alue (e.g., Salem e al. 2019; Issa and Fang 2019;
Dwaika e al. 2021). Simila ly, Wahab e al. (2018) sugges ha boa d oom homogenei y has
ad e se e ec s on ﬁ ms. In addi ion, he p esence o women on boa ds is widely acknowl-
edged as a pi o al ac o con ibu ing o enhanced co po a e social pe o mance (By on
and Pos 2016; Puche a-Ma ínez e al. 2018). This inclusi i y also co ela es wi h mo e
subs an ial co po a e social esponsibili y a ings (Bea e al. 2010) and g ea e anspa ency
in disclosing social and en i onmen al ini ia i es (Cabeza-Ga cía e al. 2018). Acco dingly,
inc eased emale ep esen a ion on co po a e boa ds os e s mo e democ a ic, social, and
en i onmen ally conscious o ganiza ions, esul ing in imp o ed en i onmen al, social,
and go e nance (ESG) sco ing (del Ma Fuen es-Fuen es e al. 2023) while concu en ly
enhancing company alue and op imizing economic e u ns (Jiang e al. 2021).
J. Risk Financial Manag. 2023,16, 512. h ps://doi.o g/10.3390/j m16120512 h ps://www.mdpi.com/jou nal/j m
J. Risk Financial Manag. 2023,16, 512
Gende di e si y on co po a e boa ds has ga ne ed g owing in e es in academic ci cles
due o i s signiﬁcan impac on company pe o mance and alue, which holds ele ance
o a di e se ange o s akeholde s, including policymake s and p ac i ione s (EmadEldeen
e al. 2021; B ahma e al. 2021; Eliwa e al. 2023). This ace o co po a e go e nance
is essen ial because i enhances co po a e go e nance sys ems and he o mula ion o
s a egic decisions in he boa d oom (Ullah e al. 2019). Pas esea ch d aws on di e se
psychological, cul u al, and social heo ies o subs an ia e he implica ions o gende
di e si y on ﬁ m alues (Lu e al. 2022; Eliwa e al. 2023). Wi hin his con ex , cul u al
ac o s and socie al p essu es p omp companies o p io i ize gende di e si y wi hin
hei boa ds. Simul aneously, he egula o y landscape di e s ac oss coun ies, wi h some
na ions manda ing he inclusion o a leas one woman on co po a e boa ds, while his
issue emains ela i ely unadd essed in o he s (Ka amahmu o˘glu and Kuzey 2016; Issa and
Fang 2019). Fo ins ance, Aladwey e al. (2022) highligh ed ha in 2019, he UK Co po a e
Go e nance Code ecommended ha UK companies expand emale ep esen a ion on
hei co po a e boa ds. Also, No way has s ipula ed ha a minimum o 40% o di ec o s
on co po a e boa ds mus be emale (Eliwa e al. 2023). Acco dingly, due o a ia ions
in ins i u ional con ex s ac oss coun ies, inﬂuenced by cul u al no ms and co po a e
go e nance egula ions, he impac o boa d gende di e si y on ﬁ m alue and CSR
pe o mance is likely o di e (Issa and Fang 2019).
The concep o “masculini y” is a socially cons uc ed ideology ha socie ies use o
deﬁne he beha io s and a ibu es expec ed o men. In many cul u es, he e is a p e ailing
belie , pa icula ly among women, ha men occupy a dominan socie al posi ion. Men
a e discou aged om yielding, comp omising, o displaying emo ions, o en pe cei ed as
signs o weakness. In con as , eminini y is o en seen as he pola opposi e o masculini y,
associa ed wi h quali ies such as comp omise, su ende , and emo ional exp ession, which
a e conside ed eminine and, he e o e, weake . As a esul , masculini y ep esen s he
dominan au ho i y o men, gi ing hem mo e powe and agency han women. Some
schola s ha e a gued ha socie ies end o uphold dominan social oles o men, g an ing
hem au ho i y o e women and o he gende iden i ies pe cei ed as eminine (Nahshal
2019). Consequen ly, masculini y shapes and deﬁnes ela ionships wi hin he amewo k o
dominance, alliances, and subo dina ion. In his way, masculini y becomes a hind ance o
he p og ess o women, as hey a e o en conﬁned o oles deﬁned by masculini y, hinde ing
socie al e olu ion (Dobash and Dobash 2003; Ma golis e al. 2009; Flamme 2015).
The impac o gende di e si y on co po a e pe o mance emains an unde explo ed
a ea in he Middle Eas and No h A ica MENA egion coun ies like Saudi A abia, whe e
women’s empowe men condi ions a e in a s a e o e olu ion, albei a a ying a es ac oss
coun ies due o he complex socioeconomic dynamics wi hin he egion (see, Al Hameli
e al. 2023). The low numbe o emale di ec o s ep esen ed wi hin he Saudi boa d
(Chebbi and Amme 2022), d i en by cul u al and social p essu es, may con ibu e o
such an end. Saudi A abia is widely ecognized as a pa ia chal and masculine socie y.
Men p edominan ly hold posi ions o powe and exe cise dominance o e women, e en
in domains adi ionally conside ed he domain o women. Men a e expec ed o be he
p ima y b eadwinne s, while women a e adi ionally assigned o manage he household,
wi h men ypically se ing as he heads o hei amilies (Moba aki and Söde eld 2010).
Howe e , he e a e ins ances whe e men also ake cha ge o household managemen .
Women o en ﬁnd hemsel es in si ua ions whe e hey canno exp ess hei opinions,
pe spec i es, o emo ions, and hey may ha e limi ed mobili y ou side he bounda ies o
hei homes. This dynamic has led o a signiﬁcan powe imbalance be ween men and
women in Saudi socie y. Consequen ly, masculini y has a p o ound impac on he lack
o empowe men o women in he Saudi wo k o ce and has played a pi o al ole in he
i ual absence o women’s oles in he wo kplace.
Saudi A abia is demons a ing apid economic g ow h, posi ioning i sel as a p omi-
nen eme ging economy egionally in he Middle Eas and globally. A e he new 2030
Vision announcemen in Ap il 2016, he Saudi go e nmen made subs an i e changes o
89
J. Risk Financial Manag. 2023,16, 512
inc ease women’s ep esen a ion in op manage ial posi ions and ce ain di isions a-
di ionally es ic ed o men (Alma hami e al. 2020). To enhance emale ep esen a ion
in he public domain, women we e appoin ed o go e nmen al posi ions and g an ed
pa icipa ion igh s in he cons ained poli ical p ocesses un olding wi hin Saudi A abia
(Ka olak 2023). The go e nmen has also imposed u he e o ms, such as en o cing Saudi
job quo as mo e igo ously han e e and inco po a ing posi i e disc imina ion in hi ing
women; o he wise, punishmen is implemen ed (Boshnak e al. 2023). The e o e, i is
necessa y o in es iga e adi ional no ions o masculini y as a subs an ial ole in gende
di e si y and i s ela ionship wi h ESC sco e and ﬁ m alue.
Acco dingly, he implica ions men ioned abo e o he Saudi 2030 ision, accompanied
by he con empo a y economic e o ms in Saudi A abia, would enhance emale pa icipa-
ion and empowe men and would con ibu e o eshaping he cul u al con ex in Saudi
A abia om masculine-domina ed o a no ion o boa d di e si y and equali y. While his
ini ia i e an icipa es bols e ing Saudi A abia’s economic well-being h ough heigh ened
emale wo k o ce pa icipa ion, empi ical esea ch o assess he e ﬁcacy and achie emen o
Vision 2030’s objec i es in enhancing women’s in ol emen needs o be imp o ed (Alma h-
ami e al. 2020). In addi ion, Almuba ak e al. (2023) issued a call o esea ch pape s ha
explo e he in e play be ween co po a e go e nance a iables and he dynamics o ESG in
conjunc ion wi h a ious ac o s, encompassing he beneﬁ s o sus ainable managemen
and gende di e si y conside a ions. Thus, he s udy sheds ligh on an unexplo ed a ea
wi hin he ele an li e a u e: he examina ion o boa d gende di e si y in Saudi A abia
and i s po en ial impac on co po a e pe o mance. Acco dingly, i is in e es ing o gain
deepe insigh s in o gende di e si y in he e e -changing cul u al and social en i onmen .
Thus, ou pape aims o s udy he e ec o boa d gende di e si y on ﬁ m alue in Saudi
A abia and how he ESG sco ing would media e such an e ec subjec o he eshaped
cul u al dimension. The aim o ou pape is o es he media ing e ec o ESG sco ing as a
p oxy o he sus ainabili y pe o mance on he ela ionship be ween gende di e si y and
ﬁ m alue, aking in o accoun he cul u al dimension o Saudi A abia. U ilizing s uc u al
equa ion modeling (SEM), a well-es ablished in e en ial amewo k o media ion analyses,
we examine a sample o 54 Saudi ﬁnancial companies lis ed on he Saudi S ock Exchange
(Tadawul) om 2021 o 2022, esul ing in 108 ﬁ m-yea obse a ions.
The ﬁndings un eil a nega i e associa ion be ween emale di ec o s’ p esence and
Saudi ﬁ ms’ alue. This ela ionship can be a ibu ed o Saudi A abia’s p edominan ly
male-domina ed socie y, whe e a co po a e boa d wi h a highe p opo ion o emale mem-
be s may be less willing o adhe e o he no ion o hinking ha p io i izes objec i e and
pe o mance-o ien ed a i udes and ac ions ha migh diminish hei pe cei ed legi imacy.
Acco dingly, he p e alence o adi ional masculini y in socie y may dampen he posi i e
inﬂuence o boa d di e si y on a company’s pe o mance. Fu he mo e, he ﬁndings sug-
ges a co ela ion be ween he pa icipa ion o emale di ec o s on Saudi co po a e boa ds
and enhancemen s in companies’ ESG sco es, se ing as a p oxy o hei sus ainable
pe o mance and disclosu e. This ﬁnding is consis en wi h a subs an ial body o esea ch
ha unde sco es he c ucial ole o boa d gende di e si y in imp o ing a company’s
sus ainabili y pe o mance. No ably, ESG ac s as a comp ehensi e media o , e ec i ely
channeling he in ended impac o boa d gende di e si y in p omo ing he alue o Saudi
companies. In essence, he sus ainabili y amewo k akes p ecedence, ou weighing he
inﬂuence o boa d gende di e si y in enhancing a company’s alue, as gende di e si y is
ully in eg a ed wi hin he sus ainabili y con ex .
Ou pape con ibu es o he pe inen li e a u e in many aspec s as ollows: Fi s ,
i sheds ligh on one o he uncha ed a eas in he pe inen li e a u e, he boa d gende
di e si y in Saudi A abia and i s implica ions on he alue o Saudi ﬁ ms. Second, al hough
he cul u al and social ba ie s o women’s pa icipa ion in Saudi boa ds s ill ma e , ou
pape p o ides empi ical e idence ha he po en ial o emale di ec o s in enhancing Saudi
ﬁ ms’ alue is ully media ed wi hin sus ainabili y ini ia i es. Thus, ou s udy emphasizes
ha di e se cul u al con ex s inﬂuence he expec ed posi i e ou comes o gende di e si y
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J. Risk Financial Manag. 2023,16, 512
wi hin co po a e boa ds, which, in u n, con ibu es o he ealiza ion o ﬁ m alue. Thi d, i
unde sco es he no ion ha he pa hways o a aining sus ainabili y goals also acili a e he
p omo ion o gende equali y and di e si y in a as -mo ing Saudi business en i onmen .
The emaining sec ions o he pape p oceed as ollows. In Sec ion 2, we del e in o
he ins i u ional con ex , e iew he ele an li e a u e, and ou line he de elopmen o
hypo heses. Sec ion 3 p o ides an o e iew o he me hodology, including de ails abou
he sample, da a, and models u ilized. P oceeding o Sec ion 4, we p esen desc ip i e
s a is ics and he p ima y ﬁndings o ou s udy. Sec ion 5 is dedica ed o addi ional es s
conduc ed in ou esea ch. Finally, Sec ion 6 o e s ou conclusions, implica ions, and
ecommenda ions o u u e esea ch di ec ions.
2. Backg ound, Li e a u e Re iew, and Hypo heses De elopmen
2.1. Gende Di e si y and ESG Sco e in Saudi A abia
A g owing emphasis on gende di e si y has also had egula o y implica ions. Go e n-
men s and egula o s a e paying inc easing a en ion o emale pa icipa ion in businesses;
depending on whe e hey ope a e, companies may ace e en mo e egula o y p essu e o
add ess gende di e si y a he boa d le el and beyond (S&P Global 2020). Fo example,
in U.S., Cali o nia’s law equi ing ce ain publicly aded companies o include women
on hei boa ds will mo e han double he o al numbe o emale-held boa d sea s in he
s a e. O he U.S. s a e go e nmen s, including New Je sey, Illinois, and Massachuse s,
ha e aken e o s o in oduce simila legisla ion ela ed o gende di e si y on boa ds o
di ec o s (S&P Global 2020).
In he Saudi con ex , amid global eques s o enhance en i onmen al, social, and go -
e nance in es men s, he Saudi go e nmen in Saudi A abia wan s an imp o ed app oach
ha combines ESG demand wi h oday’s challenging economic eali y
1
The GDP in Saudi
A abia has his o ically been hea ily inﬂuenced by oil expo s. Ne e heless, due o he
ola ili y and ins abili y in oil p ices du ing he pas decade, C own P ince Mohammed
bin Salman, ac ing on behal o he Saudi go e nmen , in oduced he Saudi Vision 2030
amewo k on 25 Ap il 2016 (Boshnak e al. 2023). The Saudi Vision o 2030
2
p io i izes
he adop ion o essen ial ﬁscal amendmen s ha enhance Saudi A abia’s economic sus-
ainabili y in he long un. In 2021, he Saudi S ock Exchange
3
announced ESG disclosu e
s anda ds, which will assis lis ed businesses and po en ial co po a ions in ending o go
public wi h hei ESG epo ing and p omo e awa eness in he local ma ke . Acco ding o
he ESG Disclosu e Guidelines eleased by he Saudi exchange
4
, he sus ainable g ow h
is he pi o o he Vision 2030, and i s unde lying p inciples enhance he o mula ion and
execu ion o Vision 2030 ha a e in alignmen wi h he chie ene s o ESG p ac ices. This
alignmen jus iﬁes he eason behind he Saudi exchange’s empowe men owa d ESC
discou se in he capi al ma ke . In addi ion, in 2018
5
, he Saudi S ock Exchange en e ed a
pa ne ship wi h he UN Sus ainable S ock Exchanges Ini ia i e. This collabo a ion aimed
o enhance he ESG awa eness ini ia i es and p omo e sus ainable in es men p ac ices.
Fu he mo e, as no ed by Nahshal (2019), one o he undamen al goals embedded in
Vision 2030 is he enhancemen o women’s empowe men in Saudi A abia. In 2019, Saudi
A abia achie ed a ema kable su ge in i s anking in he Wo ld Bank G oup’s Women,
Business, and he Law epo
6
. This upswing su passed ha o all o he coun ies when
compa ed o i s 2018 anking. Addi ionally, he In e na ional Finance Co po a ion (IFC)
eleased a epo in 2022 on gende equali y in co po a e leade ship among G20 na ions
7
,
e ealing an inc ease in he pe cen age o women holding boa d sea s in Saudi A abia
in 2022. This subs an ial p og ess can be a ibu ed o Saudi A abia’s adop ion o an
ex ensi e ange o measu es aimed a expanding women’s oles in socie y and g an ing
hem unp eceden ed economic eedoms (Ka olak 2023).
Consequen ly, women’s con ibu ions in Saudi A abia a e now no only expec ed
bu also acknowledged. Howe e , a pe sis ing challenge ha necessi a es cul u al adjus -
men s o esolu ion is he en enched pe cep ions o gende oles in a p edominan ly
male-domina ed ﬁeld (Chebbi and Amme 2022). Despi e he pe sis ing issues ela ed o
91

J. Risk Financial Manag. 2023,16, 512
masculini y in he coun y, Saudi emale empowe men is g adually eshaping socie al
no ms and challenging he s a us quo. This e ol ing landscape is indica i e o a g owing
mo emen owa d achie ing genuine gende equali y (Nahshal 2019).
2.2. Hypo hesis De elopmen
Table 1 summa izes he p e ious esea ch ela ed o ou main a iables as ollows.
Table 1. A summa y o he p io esea ch.
Resea ch Va iables Au ho Findings
Boa d gende di e si y and
ﬁ m alue.
Salem e al. (2019); Issa and Fang
(2019); Dwaika e al. (2021)
- Demons a ed he capaci y o emale boa d di ec o s o ele a e a
company’s o e all alue.
Agyemang-Min ah and Schadewi z
(2019)
- No ed ha ﬁnancial ins i u ions beneﬁ om he p esence o
emale di ec o s by wi nessing an inc ease in hei alue.
Nogue a (2020)
- Emphasized he posi i e co ela ion be ween emale di ec o s and
he alue o eal es a e in es men us s.
Bagh e al. (2023) - Re ealed a posi i e associa ion be ween boa d di e si y and
company alue.
Alhosani and Nobanee (2023)
- S a ed ha gende di e si y in co po a e boa ds has an impac on
ﬁ m alue.
Boa d gende di e si y, ﬁ m alue,
and ﬁ m pe o mance. Te jesen e al. (2015)
- Found women di ec o s ele a e boa d pe o mance h ough hei
p oblem-sol ing acumen and c ea i i y, ul ima ely con ibu ing o
inc eased business alue.
Boa d gende di e si y and ESG
pe o mance.
Cabeza-Ga cía e al. (2018)
- Found gende di e si y wi hin co po a e boa ds can con ibu e o
he ﬁ m’s social and en i onmen al pe o mance.
By on and Pos (2016) - The p esence o women on co po a e boa ds has been associa ed
wi h ele a ed le els o co po a e social pe o mance.
Bea e al. (2010) - Gende di e si y wi hin co po a e boa ds can con ibu e o
s onge co po a e social esponsibili y a ings.
Cabeza-Ga cía e al. (2018) - The p esence o women on co po a e boa ds inc eased disclosu e
o social and en i onmen al p ac ices.
Aladwey e al. (2022)
- Obse ed ha emale di ec o s end o exhibi highe le els o
esponsibili y, which can mo i a e companies o disclose
in o ma ion ela ed o hei social and en i onmen al ini ia i es.
Rao and Til (2016); Yasse e al. (2017);
Ha jo o and Laksmana (2018)
- S a e he inﬂuen ial ole o emale di ec o s in shaping social and
en i onmen al epo ing.
Puche a-Ma ínez e al. (2018)
- Disco e ed a posi i e co ela ion be ween he p esence o ex e nal
women di ec o s (bo h independen and ins i u ional) and CSR
disclosu e.
Flamme (2015); Ma golis e al. (2009);
Donaldson and P es on (1995)
- Company’s commi men o social and en i onmen al
esponsibili y con ibu e o i s compe i i e ad an age, ul ima ely
enhancing i s pe o mance and alue.
ESG pe o mance and ﬁ m alue. Aloda e al. (2023) - Found ha CSR disclosu e ha e po en ial o inc ease ﬁ m alue
and maximize economic e u n.
Boa d gende di e si y, ﬁ m alue,
and ESG pe o mance.
Ahe n and Di ma (2012); Ma sa and
Mille (2013)
- Demons a ed ha gende di e si y has no signiﬁcan e ec on
ﬁ m- ela ed ou comes, including he ESG sco e.
Escamilla-Solano e al. (2023)
- Women di ec o s ha e mul iple posi i e e ec s on ﬁ m- ela ed
ou comes and alues, p ima ily in e ms o imp o ing he ESG
sco e and p omo ing e hical beha iou .
Wang e al. (2023)
- The media ing ole o he ESG sco e in he ela ionship be ween
gende di e si y and ﬁ m alue can be expec ed o di e based on
he speciﬁc coun y and i s con ex .
2.2.1. The Rela ionship be ween Gende Di e si y and Fi m Value
Boa d gende di e si y has eme ged as a pi o al componen wi hin co po a e go e -
nance. I s signiﬁcance lies in i s capaci y o enhance he co po a e go e nance sys em and
inﬂuence he s a egic decisions o mula ed in he boa d oom. Women occupying senio
managemen posi ions, pa icula ly on boa ds, con ibu e a unique se o expe iences and
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J. Risk Financial Manag. 2023,16, 512
pe spec i es ha o i y he go e nance unc ion o he boa d. This, in u n, can bols e
decision-making p ocesses and yield posi i e impac s on co po a e alue.
A body o p e ious esea ch has es ablished a s ong ela ionship be ween he p esence
o women on co po a e boa ds and enhanced business alue. No ably, s udies conduc ed by
Salem e al. (2019), Issa and Fang (2019), and Dwaika e al. (2021) ha e all demons a ed he
capaci y o emale boa d di ec o s o ele a e a company’s o e all alue. Agyemang-Min ah
and Schadewi z (2019) u he no ed ha ﬁnancial ins i u ions beneﬁ om he p esence
o emale di ec o s by wi nessing an inc ease in hei alue. Addi ionally, Nogue a (2020)
emphasized he posi i e co ela ion be ween emale di ec o s and he alue o eal es a e
in es men us s, highligh ing women’s po en ial o se e as skilled di ec o candida es
who enhance ma ke awa eness wi hin he indus y. Mo eo e , women di ec o s ha e been
ound o ele a e boa d pe o mance h ough hei p oblem-sol ing acumen and c ea i i y,
ul ima ely con ibu ing o inc eased business alue (Te jesen e al. 2015). In a simila ein,
Bagh e al. (2023) e ealed a posi i e associa ion be ween boa d di e si y and company
alue. This connec ion is a ibu ed o he di e se and dis inc cha ac e is ics o boa d
membe s, which acili a e he o mula ion o high-quali y decisions.
As men ioned ea lie , Saudi’s Vision 2030 opens he doo o emale pa icipa ion and
empowe men . As a gued by Nahshal (2019), his emb aced ision has led o wha can be
desc ibed as a “Golden Age” o women in Saudi A abia, ushe ing in a signiﬁcan wa e
o cul u al ans o ma ion, especially ega ding adi ional gende oles. This no ion o
hinking ma ks a signiﬁcan depa u e om adi ional no ms whe e gende seg ega ion
hinde ed women om ealizing hei ull po en ial, and hei empowe men was iewed
as unnecessa y o achie e economic de elopmen (Ka olak 2023). Acco dingly, based on
he con ex o Saudi A abia, we hypo hesize he ollowing:
H1: The e is a posi i e associa ion be ween boa d gende di e si y and ﬁ m alues.
2.2.2. The Rela ionship be ween Gende Di e si y and ESG Sco e
As social and en i onmen al issues become mo e p essing, ESG and sus ainable
in es men ha e become impo an . Fu he mo e, gende di e si y is a social quali y
ha in es o s alue, and i is a me ic businesses a e eage o p omo e. In es o s a e
becoming mo e awa e o he need o esol e en i onmen al, social, and go e nance (ESG)
issues, pu ing p essu e on public companies o pe o m well in all h ee a eas. As a
esul , in es o s a e u ging ﬁ ms o di e si y hei boa ds o di ec o s and o pe o m
gende di e si y and equali y audi s o de e mine how hey will espond o ESG isks and
oppo uni ies (S&P Global 2020). As a esul , gende di e si y has become an essen ial
aspec o he ESG’s iden i y (Bu don 2023). Gende di e si y se es o ein o ce and p omo e
ESG in es ing and companies who make an e o o do so. As expec ed, companies ha
ha e p e iously adop ed gende di e si y ha e expe ienced nume ous ad an ages. Gende
di e si y, o example, is a signiﬁcan ea u e o in eg a ing en e p ises in o ESG unds.
Aside om ha , a ing agencies e alua e gende di e si y while e alua ing hei “S”
sco e. When a company pe o ms well in all h ee ca ego ies (en i onmen al, social, and
go e nance), i has a signiﬁcan ly be e chance o being included in ESG- ocused in es ing
s a egies (Bu don 2023).
P io esea ch has inc easingly cen e ed on he in e connec ion be ween co po a e
go e nance and sus ainabili y. In his con ex , co po a e go e nance and ESG disclosu e
a e inhe en ly in e wined, eﬂec ing a company’s engagemen wi h i s in e nal and ex-
e nal socio-poli ical en i onmen . No ably, gende di e si y wi hin co po a e boa ds has
eme ged as a pi o al aspec o co po a e go e nance, p o iding aluable esou ces such
as pe sonal ne wo ks, knowledge, and e hical p inciples ha can con ibu e o he ﬁ m’s
social and en i onmen al pe o mance (Cabeza-Ga cía e al. 2018).
As a esul , he p esence o women on co po a e boa ds has been associa ed wi h
ele a ed le els o co po a e social pe o mance (By on and Pos 2016; Puche a-Ma ínez
e al. 2018), mo e subs an ial co po a e social esponsibili y a ings (Bea e al. 2010), and
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J. Risk Financial Manag. 2023,16, 512
inc eased disclosu e o social and en i onmen al p ac ices (Cabeza-Ga cía e al. 2018). In-
cluding mo e women on co po a e boa ds os e s g ea e democ a ic, socially engaged, and
ecologically esponsible co po a e p ac ices, he eby imp o ing social and en i onmen al
s anda ds. Mo eo e , Aladwey e al. (2022) obse ed ha emale di ec o s exhibi highe
le els o esponsibili y, which can mo i a e companies o disclose in o ma ion ela ed o
hei social and en i onmen al ini ia i es. This iew is suppo ed by Rao and Til (2016),
Yasse e al. (2017), and Ha jo o and Laksmana (2018), which unde sco es he inﬂuen-
ial ole o emale di ec o s in shaping social and en i onmen al epo ing. Fu he mo e,
Puche a-Ma ínez e al. (2018) disco e ed a posi i e co ela ion be ween ex e nal women
di ec o s (independen and ins i u ional) and CSR disclosu e.
Subjec o he Saudi con ex , Ka olak (2023) a gued ha o inc ease women’s pa -
icipa ion in he public sphe e, women we e appoin ed o go e nmen al posi ions and
g an ed oppo uni ies o engage in he limi ed poli ical p ocesses in Saudi A abia. Acco d-
ingly, in ligh o he e idence indica ing ha he inclusion o emale di ec o s on co po a e
boa ds enhances social and en i onmen al disclosu e, ou esea ch p oposes he ollowing
hypo hesis:
H2: The e is a posi i e associa ion be ween gende di e si y and ESG sco e.
2.2.3. The Rela ionship be ween Gende Di e si y and Fi m Value: The Media ing E ec o
ESG Disclosu e
The bene i s o a company’s commi men o social and en i onmen al esponsibili y
con ibu e o i s compe i i e ad an age, ul ima ely enhancing i s pe o mance and alue
(Donaldson and P es on 1995; Ma golis e al. 2009; Flamme 2015). Companies p io i izing
sus ainabili y disclosu e can inc ease hei alue and maximize economic e u ns (Aloda
e al. 2023). Fu he mo e, i ms wi h g ea e gende di e si y on hei boa ds end o be mo e
engaged in epo ing on social and en i onmen al issues (Aladwey e al. 2022). Al e ing
he composi ion o co po a e boa ds by inc easing emale ep esen a ion can enhance boa d
pe o mance because di e se boa ds o en b ing a mo e comp ehensi e pe spec i e. Howe e ,
he impac o gende di e si y on co po a e boa ds and i s connec ion o i m alue can a y
signi ican ly depending on he con ex and coun y (Alhosani and Nobanee 2023).
In he con ex o Ho s ede’s cul u al dimensions, he “masculini y- eminini y” di-
mension can inﬂuence boa d gende di e si y, ﬁ m pe o mance, and alue. This cul u al
dimension may ei he suppo o esis boa d di e si y. Fo ins ance, masculini y in o gani-
za ional cul u e emphasizes achie emen , asse i eness, and ma e ial ewa ds o success.
In na ions cha ac e ized by a p onounced masculini y wi hin hei o ganiza ional cul u e,
co po a e boa ds o en exhibi mo e signiﬁcan gende di e en ia ion, wi h a p edominan
emphasis on objec i es among boa d membe s (Kabi e al. 2023). In con as , a mo e emi-
nine cul u e p omo es gende equali y, and boa d membe s end o be mo e comp omising
and collabo a i e. In such cul u es, women on boa ds o en ocus on non-mone a y con-
ibu ions and os e coope a i e ela ionships, emphasizing ela ionships o e objec i es
(Lucke a h-Ro e s 2013).
Due o a ia ions in ins i u ional con ex s ac oss coun ies d i en by cul u al di e -
ences (Pos and By on 2015), he media ing ole o he ESG sco e in he ela ionship be ween
gende di e si y and ﬁ m alue can be expec ed o di e based on he speciﬁc coun y and
i s con ex . Some schola s a gue ha appoin ing women di ec o s o he boa d has mul iple
posi i e e ec s on ﬁ m- ela ed ou comes and alues, p ima ily in e ms o imp o ing he
ESG sco e and p omo ing e hical beha io (Puche a-Ma ínez e al. 2018; Escamilla-Solano
e al. 2023). Howe e , o he au ho s sugges ha gende di e si y does no signiﬁcan ly
a ec ﬁ m- ela ed ou comes, including he ESG sco e (Ahe n and Di ma 2012; Ma sa and
Mille 2013). Gi en hese inconsis en ﬁndings, we hypo hesize ha he ESG sco e media es
he ela ionship be ween gende di e si y and ﬁ m alue in he con ex o Saudi A abia.
This hypo hesis can be o mula ed as ollows:
H3: ESG disclosu e media es he ela ionship be ween gende di e si y and ﬁ m alue.
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J. Risk Financial Manag. 2023,16, 512
Figu e 1 depic s he impac o BGD on FV, as indica ed by pa h (c’), media ed h ough
he ole o ESG, ep esen ed by pa hs (a) and (b). As illus a ed in Panel A, Figu e 1, pa h
(c) signiﬁes he di ec inﬂuence o BGD on FV. The inclusion o media ing a iables leads o
he b eakdown o he o al e ec (c) o BGD on FV in o a di ec e ec (c’) and an indi ec
e ec (ab), as p esen ed in Panel B, Figu e 1.
Figu e 1. Boa d gende di e si y and ﬁ m alue: he media ing e ec o ESG disclosu e.
3. Me hodology
3.1. Sample and Da a
To assess he media ing impac o ESG discou se on he ela ionship be ween gende
di e si y and ﬁ m alue, we conduc ed ou analysis using a sample comp ising ﬁnancial
Saudi companies lis ed on he Saudi S ock Exchange (Tadawul). Ou sample comp ises
a di e se ange o ﬁnancial Saudi-lis ed ﬁ ms ac oss a ious sec o s, including banks,
di e siﬁed ﬁnancials, REITs, and insu ance. Fu he mo e, he da ase encompasses da a o
he yea s 2021 and 2022, ep esen ing he mos ecen a ailable in o ma ion. As a gued by
Shen e al. (2020) and Sul ana e al. (2022), he global COVID-19 pandemic subs an ially
dampened economic ac i i ies wo ldwide. Acco dingly, we could no ex end ou analysis
o a b oade ime ame p eceding he men ioned pe iod due o he e iden impac o he
COVID-19 pandemic on ﬁnancial da a. The sampling p ocess and ca ego iza ion o ﬁ ms
based on hei espec i e indus ial sec o s a e p esen ed in Table 2. A e he exclusion o
companies wi h no o insu ﬁcien da a abou he a iables unde in es iga ion, ou ﬁnal
sample consis ed o 54 companies wi h 108 company-yea obse a ions.
Da a abou he a iables unde in es iga ion we e collec ed om di e en sou ces.
We manually collec ed he da a ega ding he ﬁnancial a iables om he Saudi S ock
Exchange’ Tadawul’ websi e. In addi ion, he ESG sco e was ob ained om he Reﬁni i
Thomson Reu e s Da abase. Finally, da a o gende di e si y we e manually collec ed
om companies’ annual epo s, go e nance epo s, and o ﬁcial websi es. Following
Gonçal es e al. (2022), all con inuous a iables we e winso ized a 1% o educe he
inﬂuence o ou lie s.
95
J. Risk Financial Manag. 2023,16, 512
67 Saudi-lis ed companies o 2014–2019, e eals ha he a io o emale di ec o s on he
boa d posi i ely co ela es wi h he ex en o CSR disclosu e. Howe e , his co ela ion is
s a is ically nonsigniﬁcan . Simila ly, Chebbi and Amme (2022), d awing om a sample o
38 Saudi companies om 2015 o 2021, epo ed a posi i e bu nonsigniﬁcan associa ion
be ween BGD and ESG. Chebbi and Amme (2022) con end ha a plausible explana ion
o he nonsigniﬁcan associa ion is he cons ained p esence o emale di ec o s on he
co po a e boa ds wi hin he sample hey u ilized.
Table 8 also p o ides insigh s in o he ela ionship be ween ESG and con ol a iables.
Based on a signiﬁcance h eshold o 1%, he esul s e eal a posi i e and signiﬁcan e-
la ionship be ween BS and ESG, as indica ed by a p- alue o 0.005 and a coe ﬁcien (
β3
)
o 0.695. This ﬁnding sugges s ha mo e di ec o s on Saudi boa ds a e associa ed wi h a
highe p opensi y o engage in sus ainabili y ac i i ies and ini ia i es. This is consis en
wi h he pe spec i e p esen ed by Aladwey e al. (2022) om an agency heo y s andpoin ,
which sugges s ha la ge co po a e boa ds enhance hei capaci y o o e see managemen ,
imp o e anspa ency, and disclose non-ﬁnancial in o ma ion while educing in o ma ion
asymme y. In addi ion, Table 8 also e eals a posi i e e ec o AGE on ESG a a signiﬁcance
le el o 1%, wi h a p- alue = 0.005 and a coe ﬁcien (
β5
) o 0.968. Hence, i can be obse ed
ha olde Saudi companies a e mo e ecep i e o sus ainable p ac ices and demons a e
g ea e willingness o pu sue sus ainable objec i es compa ed o younge companies. This
aligns wi h a simila obse a ion by Fi ani a e al. (2023).
4.3.3. Es ima ing he Media ing E ec o ESG Disclosu e on he Rela ionship be ween
Boa d Gende Di e si y and Fi m Value
S eps h ee and ou in ol ed es ima ing he indi ec ela ionship be ween boa d
gende di e si y (X) and ﬁ m alue (Y), speciﬁcally ocusing on he media ing e ec o ESG
disclosu e (M). Upon inco po a ing ESG in o Model 3, he associa ion be ween BGD and FV
becomes non-signiﬁcan , as epo ed in Table 8, Model 3, con as ing wi h he signiﬁcan
ela ionship p esen ed in Table 8, Model 1. In addi ion, a a 1% signiﬁcance le el, Table 8,
Model 3 highligh s a signiﬁcan and posi i e associa ion be ween ESG and FV, suppo ed
by a p- alue o 0.002 and a
β2
’s coe ﬁcien o 0.016. These esul s all oge he indica e
ha ESG ully media es he ela ionship be ween BGD and FV, conﬁ ming he ulﬁllmen
o H3. Mo eo e , we illus a e he media ion e ec using he Sobel z- es . The ou comes
p esen ed in Table 8 indica e ha ESG se es as a signiﬁcan media o in he ela ionship
be ween BGD and FV, whe e he p- alues o Sobel o 0.002, A oian o 0.025, and Goodman
o 0.019 a e all signiﬁcan , alling below he 5% signiﬁcance h eshold. Acco dingly, ESG
unc ions o o se he e ec o BGD on FV. In addi ion, he en i e media ion en ails ha he
collabo a ion o ESG and BGD con ibu es o he enhancemen o FV.
As pe he Sus ainable De elopmen Repo (2023), he Sus ainable De elopmen Goals
(SDGs) ad oca e o go e nmen s o p omo e gende equali y and es ablish i as a c i ical
agenda wi hin he amewo k o sus ainable de elopmen goals. Acco dingly, ESG plays
a p ominen ole in enhancing Saudi companies’ alues in he KSA con ex . Acco dingly,
his ﬁnding aligns wi h he co e p inciples o Vision 2030. As p e iously men ioned, Vision
2030 s ongly emphasizes sus ainable g ow h, and i s guiding p inciples closely esona e
wi h ESG p ac ices. Mo eo e , ESG ac s as a comple e media o , e ec i ely channeling
he in ended impac o BGD in enhancing he alue o Saudi companies. Simply pu , he
sus ainable concep akes p ecedence, ou weighing he inﬂuence o BGD in enhancing
a company’s alue because gende di e si y is ully in eg a ed wi hin he sus ainabili y
amewo k.
Simila ly, Filho e al. (2022) a gue ha gende - ela ed ma e s, pa icula ly gende
equali y, can be iewed as o e a ching conce ns wi hin he ealm o sus ainabili y, con-
ibu ing o he achie emen o sus ainable de elopmen goals, e en hough he p ecise
mechanisms o hei inclusion may no always be e iden . Simila ly, Ala cón and Cole
(2019) asse ha he pa hways o achie ing sus ainabili y goals also se e as a means o
p omo e gende equali y and di e si y. I is wo h no ing ha he ice e sa would no
102

J. Risk Financial Manag. 2023,16, 512
happen. As e idence, Ahe n and Di ma (2012) and Ma sa and Mille (2013) con end ha
he signiﬁcan gende imbalance on boa ds may no necessa ily lead o swi changes in
o ganiza ional ESG ac i i ies.
5. Robus ness Check
Simila o Salhi e al. (2020) and Aloda e al. (2023), in o de o assess he obus ness o
ou main ﬁndings, we e-conduc ed he main analysis o de e mine whe he he media ing
ole o ESG holds i we subs i u e he measu e o ou dependen a iable: ﬁ m alue.
Acco dingly, we e-es ima ed he main analysis using FV-SP as an indica o o ﬁ m alue.
Following D’Ama o and Fali ena (2020), FV-SP was measu ed as he annual g ow h a e o
he s ock p ice o ﬁ miin yea , and calcula ed as ollows:
FV-SPi = [(Pi −Pi −1)/Pi −1]×100
whe e:
Pi ep esen s he s ock p ice o ﬁ miin yea .
Pi −1 ep esen s he s ock p ice o ﬁ miin he p e ious yea −1.
Da a o he s ock p ice we e manually collec ed om he Saudi s ock exchange
(Tadawul). The ou comes displayed in Table 9 show a simila i y o he ﬁndings epo ed
ea lie in Table 8.
Table 9. Addi ional es : he al e na e measu e o ﬁ m alue.
Model 1
(FV-SP)
Model 2
(ESG)
Model 3
(FV-SP)
Coe . p-Value Coe . p-Value Coe . p-Value
Fi m alue (FV) 6.907 ** 0.037 1.359 *** 0.001 1.802 0.852
ESG 0.449 ** 0.046
Boa d
independence
(BI)
−2.962 ** 0.043 −7.761 0.469
Boa d size (BS) 1.602 0.411 1.668 ** 0.005
Fi m size (FS) 0.211 0.871 1.083 0.160
Fi m age (AGE) 2.061 0.969 1.600 ** 0.005
Le e age (LEV) 0.467 ** 0.036 −0.037 0.701
Cons an −1.03 0.499 −6.07 *** 0.003 −3.051 0.970
R-squa ed 0.126 0.373 0.160
Hausman es 2.24 *** 1.80 * 2.61 ***
Fi m and yea
e ec Yes Yes Yes
N-Obs 108 108 108
Sobel 0.058
A oian 0.059
Goodman 0.074
*** p< 0.01, ** p< 0.05, * p< 0.1.
6. Conclusions
Ou pape aims o explo e he media ing e ec o ESG disclosu e on he ela ionship
be ween gende di e si y and ﬁ m alue, aking in o accoun he cul u al con ex . Based on
a sample o Saudi-lis ed ﬁnancial companies om 2021 o 2022, he esul s show a nega i e
and signiﬁcan associa ion be ween gende di e si y and ﬁ m alue. Upon in oducing
103
J. Risk Financial Manag. 2023,16, 512
he ESG sco e as a media o a iable, he esul s indica e ha ESG ully media es he
ela ionship be ween gende di e si y and ﬁ m alue in Saudi ﬁnancial companies.
Ou ﬁndings unco e a signiﬁcan e ela ion: he e exis s a nega i e ela ionship
be ween co po a e gende di e si y and ﬁ m alue, pa icula ly wi hin he con ex o Saudi
A abia. This obse a ion di e ges om he p e ailing li e a u e, which p edominan ly
ad oca es o a posi i e associa ion. A possible jus iﬁca ion is ha di e se cul u al con ex s
imply dis inc p opo ions o women equi ed on co po a e boa ds o ealize ﬁ ms’ alues.
I appea s ha he esul s may be aligned wi h he cul u al dynamics o Saudi A abia, whe e
adi ional no ions o masculini y play a subs an ial ole. No ably, he low ep esen a ion
o emale di ec o s on co po a e boa ds wi hin he Saudi ﬁnancial sec o unde sco es he
in ica e in e play be ween gende di e si y and cul u al dimensions. When in ol ing
he ESG sco e as a media ing a iable, ou esul s indica e ha ESG ully media es he
ela ionship be ween gende di e si y and ﬁ m alue in Saudi ﬁnancial companies. The
sus ainable no ion dismisses he e ec o BGD on p omo ing a ﬁ m’s alue because gende
di e si y is ully embedded wi hin sus ainabili y’s pu iew. This sugges s ha cul u al
dimensions, such as masculini y, may in e sec wi h ESG conside a ions o shape he
ﬁnancial landscape in his unique con ex . Ou esul s a e obus o al e na e measu es o
ﬁ m alue.
The ﬁndings o ou pape ha e se e al implica ions o in es o s, policymake s, and
egula o s. Fi s , ou ﬁndings o e aluable insigh s o in es o s seeking o assess he
inﬂuence o boa d gende di e si y on a company’s o e all alue. Second, he ﬁndings
highligh he signiﬁcance o gende di e si y in he ealm o sus ainabili y, indica ing ha
enhancing emale ep esen a ion on co po a e boa ds is a c ucial s a egy o ﬁ ms aiming
o imp o e hei ESG sco es. Fu he mo e, his encou agemen mo i a es ﬁ ms o ac i ely
pa icipa e in sus ainabili y ini ia i es ac i ely, ecognizing hei posi i e impac on o e all
ﬁ m alue. Consequen ly, i se es as a compelling p omp o policymake s o ecognize
he impo ance o os e ing sus ainabili y disclosu es among Saudi companies, e en hough
such disclosu es emain olun a y. Addi ionally, hese ﬁndings ad oca e o egula o s and
policymake s o es ablish ules ha acili a e inc eased emale pa icipa ion on co po a e
boa ds, pa icula ly in ligh o he absence o manda o y minimum equi emen s o emale
ep esen a ion.
Gende di e si y has become a undamen al componen o Saudi A abia’s Vision 2030,
and i is an icipa ed ha os e ing gende di e si y will play a pi o al ole in achie ing
he objec i es o his ision. The pe sis ence o he cul u al dimension o a p edominan ly
masculine socie y in Saudi A abia may p esen obs acles o ealizing he po en ial beneﬁ s
o gende di e si y on co po a e pe o mance. Wi hin he sus ainabili y amewo k, he e
may be a media ing e ec o gende di e si y on ﬁ m alue. Speciﬁcally, sus ainable
pe o mance en ails he p omo ion o highe emale ep esen a ion on boa ds. This no ion
o sus ainabili y could enhance he alue o Saudi ﬁ ms and con ibu e o he ans o ma ion
o he cul u al landscape in Saudi A abia, shi ing i om one domina ed by adi ional
masculini y o a mo e inclusi e and di e se no ion o co po a e go e nance and equali y.
Thus, he p og ession o Saudi companies owa d achie ing he goals o Vision 2030
encompasses a dedica ion o sus ainable p ac ices, whe ein gende di e si y on Saudi
boa ds plays a c ucial ole. This commi men is essen ial o ealizing he posi i e impac s
o gende di e si y on he alue o Saudi ﬁ ms.
The limi a ions o ou pape could open new a enues o u u e esea ch. The s udy
explo es how a cul u al dimension, namely masculini y– eminini y, inﬂuences he me-
dia ing e ec o he ESG sco e on he ela ionship be ween gende di e si y and ﬁ m
alue. Fu he esea ch in o he in ica e dynamics o cul u al inﬂuences on co po a e
pe o mance, such as “indi idualism-collec i ism,” “unce ain y a oidance,” and “powe
dis ance,” is wa an ed o gain a deepe unde s anding o hese complex ela ionships
wi hin Saudi A abia. In addi ion, ou s udy examines he media ing e ec o ESG sco e
o e wo yea s, 2021 and 2022. O he esea che s could conduc a longi udinal panel s udy
on he e ec o gende di e si y on he ﬁ m alue o he pe iod om 2016, he yea o he
104
J. Risk Financial Manag. 2023,16, 512
incep ion o Saudi Vision, o 2030, he yea a which he ision is accomplished. In addi ion,
i is an icipa ed ha he pa icipa ion o emale di ec o s on Saudi boa ds will inc ease
a e 2030. Consequen ly, i would be in iguing o o he esea che s o explo e he impac
o achie ing a c i ical mass o emale di ec o s on he co po a e pe o mance o Saudi
companies. Fu he mo e, subjec o da a a ailabili y, ou sample only co e s he ﬁnancial
sec o in Saudi A abia. I could be in e es ing i o he esea che s expand he sample size
o include Saudi-lis ed non-ﬁnancial companies o add ess any di e ence in ﬁndings.
Au ho Con ibu ions:
Concep ualiza ion, L.M.A.A. and R.A.A.; Me hodology, L.M.A.A.; Fo mal
analysis, L.M.A.A.; Da a cu a ion, L.M.A.A.; W i ing; Re iew, L.M.A.A. and R.A.A.; Edi ing, L.M.A.A.
and R.A.A. All au ho s ha e ead and ag eed o he published e sion o he manusc ip .
Funding:
This esea ch was unded by he Deanship o Scien iﬁc Resea ch a Imam Mohammad Ibn
Saud Islamic Uni e si y (IMSIU) (g an numbe IMSIU-RG23102).
Da a A ailabili y S a emen : Da a is una ailable due o p i acy o e hical es ic ions.
Acknowledgmen s:
This wo k was suppo ed and unded by he Deanship o Scien iﬁc Resea ch a
Imam Mohammad Ibn Saud Islamic Uni e si y (IMSIU) (g an numbe IMSIU-RG23102).
Conﬂic s o In e es : The au ho s decla e no conﬂic o in e es .
No es
1h ps://www.a abnews.com/node/2267256/business-economy (accessed on 12 Ma ch 2023).
2h ps://www. ision2030.go .sa/en/ ision-2030/ p/ﬁscal-sus ainabili y-p og am/ (accessed on 2 No embe 2023).
3
Saudi Exchange o Tad
¯
awul is a s ock exchange in Saudi A abia ha was o med in 2007 as a join s ock company and he sole
en i y au ho ized o ac as a secu i ies exchange in Saudi A abia.
4
h ps://sseini ia i e.o g/wp-con en /uploads/2021/11/Tadawul-ESG-Disclosu e-Guidelines-EN.pd (accessed on 2 No em-
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5
h ps://www.saudiexchange.sa/wps/po al/saudiexchange/lis ing/issue -guides/esg-guidelines (accessed on 2 No em-
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6
h ps://www.wo ldbank.o g/en/news/opinion/2021/02/24/gende -in- he-gcc- he- e o m-agenda-con inues (accessed on 24
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7
h ps://sseini ia i e.o g/wp-con en /uploads/2022/12/SSE-IFC-G20-gende -equali y-in-co po a e-leade ship-2022.pd (ac-
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8
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108
Ci a ion: Chakk a a hy,
Balamu alik ishnan, F ancis
Gnanaseka I udayasamy, A ul
Ramana ha Pillai, Rajesh Elango an,
Na a ajan Renga aju, and
Sa yana ayana Pa ayi am. 2023. The
Rela ionship be ween P omo e s’
Holdings, Ins i u ional Holdings,
Di idend Payou Ra io and Fi m
Value: The Fi m Age and Size as
Mode a o s. Jou nal o Risk and
Financial Managemen 16: 489.
h ps://doi.o g/10.3390/
j m16110489
Academic Edi o : ¸S e an C is ian
Ghe ghina
Recei ed: 23 Oc obe 2023
Re ised: 10 No embe 2023
Accep ed: 12 No embe 2023
Published: 20 No embe 2023
Copy igh : © 2023 by he au ho s.
Licensee MDPI, Basel, Swi ze land.
This a icle is an open access a icle
dis ibu ed unde he e ms and
condi ions o he C ea i e Commons
A ibu ion (CC BY) license (h ps://
c ea i ecommons.o g/licenses/by/
4.0/).
Jou nal o
Risk and Financial
Managemen
A icle
The Rela ionship be ween P omo e s’ Holdings, Ins i u ional
Holdings, Di idend Payou Ra io and Fi m Value: The Fi m
Age and Size as Mode a o s
Balamu alik ishnan Chakk a a hy 1, F ancis Gnanaseka I udayasamy 1, A ul Ramana ha Pillai 1,
Rajesh Elango an 2, Na a ajan Renga aju 3and Sa yana ayana Pa ayi am 4,*
1PG and Resea ch Depa men o Comme ce, S . Joseph’s College (Au onomous), Bha a hidasan Uni e si y,
Ti uchi appalli 620024, Tamil Nadu, India; [email p o ec ed] (B.C.);
ancis_seka @ edi mail.com (F.G.I.); [email p o ec ed] (A.R.P.)
2
PG and Resea ch Depa men o Comme ce, Bishop Hebe College (Au onomous), Bha a hidasan Uni e si y,
Ti uchi appalli 620024, Tamil Nadu, India; [email p o ec ed]
3PG and Resea ch Depa men o Comme ce, Na ional College (Au onomous), Bha a hidasan Uni e si y,
Ti uchi appalli 620024, Tamil Nadu, India; [email p o ec ed]
4
Depa men o Managemen and Ma ke ing, Uni e si y o Massachuse s Da mou h, 285 Old Wes po Road,
No h Da mou h, Da mou h, MA 02747, USA
*Co espondence: [email p o ec ed]
Abs ac :
The p esen pape aims o empi ically examine he e ec o p omo e s’ holdings and
ins i u ional holdings on di idend payou a io and he ﬁ m alue. Mos impo an ly, his pape
explo es he age and size o he ﬁ m as he mode a o s in he ela ionships. Da a collec ed om
23 companies om India and 253 da a poin s we e analyzed o es he hypo hesized ela ionships.
The esul s indica e ha p omo e s’ holdings and ins i u ional holdings a e posi i ely associa ed
wi h di idend payou a io and ﬁ m alue. Fu he , mode a o hypo heses sugges ha (i) ﬁ m age
mode a es he ela ionship be ween p omo e s’ holdings and di idend payou a io, (ii) ﬁ m size
mode a es he ela ionship be ween ins i u ional holdings and di idend payou a io, (iii) ﬁ m age
mode a es he ela ionship be ween p omo e s’ holdings and ﬁ m alue, and (i ) ﬁ m size mode a es
he ela ionship be ween ins i u ional holdings and ﬁ m alue. The implica ions o heo y and
p ac ice a e discussed. The concep ual model de eloped and es ed in his esea ch con ibu es o
bo h he li e a u e on di idend payou a io and ﬁ m alue and o he needs o ins i u ional in es o s
in e es ed in inc easing he ﬁ m alue.
Keywo ds:
ins i u ional holdings; p omo e s’ holdings; ﬁ m alue; di idend payou a io; ﬁ m size
1. In oduc ion
The ins i u ional and p omo e s’ holdings, ﬁ m alue, and di idend payou a ios ha e
been widely esea ched by schola s in ﬁnancial managemen (G ins ein and Michaely 2005;
Jo y e al. 2017; Roze 1982; S ickland 1996;). Ex an esea ch epo ed ha mi iga ing he
agency cos s helps enhance ﬁ m alue p ima ily h ough go e nance mechanism (Ba hala
e al. 1994; Odum e al. 2019; Shlei e and Vishny 1986). The signiﬁcance o ins i u ional
holdings in enhancing he ﬁ m alue has been highligh ed by some esea che s in he
pas (e.g., Chen e al. 2018; Chung e al. 2003; Co ee 1991; S eine 1996; Tsai and Gu 2007).
Howe e , he bounda y condi ions as o how hese holdings a ec he ﬁ m alue ha e
ecei ed li le a en ion om he esea che s. On he con a y, di idend payou a io has
ecei ed inc easing a en ion by esea che s, p ima ily because o i s po en ial e ec on
he ﬁ m alue (Budagaga 2017; Damayan i and Palinggi 2023; Nu okhmah e al. 2023;
Se iyawa i e al. 2017; Tjip a e al. 2022; Yang and Ma 2022). I is well documen ed ha
ins i u ional holdings and di idend payou a io play a signiﬁcan ole in inc easing he
J. Risk Financial Manag. 2023,16, 489. h ps://doi.o g/10.3390/j m16110489 h ps://www.mdpi.com/jou nal/j m
J. Risk Financial Manag. 2023,16, 489
ﬁ m alue. Howe e , ela i ely scan esea ch add essed he mode a ing ole o size and
age o he ﬁ m.
F om a heo e ical s andpoin , he la ge sha eholde s ha e he inhe en powe o
inﬂuence he go e nance mechanism by applying p essu e on he boa d o e amp and
dance o he unes o hese in es o s(Shlei e and Vishny 1997). Howe e , he s akes
in ol ed a e e y high o hese ins i u ional in es o s. Hence, hey ca e ully moni o e en
hei d as ic mo es once hey ealize ha i would dec ease he alue o he ﬁ m. The e o e,
ins i u ional and p omo e s’ holdings ac as a double-edged swo d, and hey de e mine
which side hey use o he public, bu he consequences can only be known om hei
ac ions. I depends on he ins i u ional in es o s o examine he e ec o hei ac ions. Some
esea che s con end ha he e is posi i e associa ion o he ins i u ional holdings o he ﬁ m
alue (D akos and Beki is 2010; Hamidullah and Shah 2011; Pan and Pa anayak 2008).
The esea ch on he ela ionship be ween di idend payou a io and ﬁ m alue is
exhaus i e (Lumapow and Tumiwa 2017; Odum e al. 2019). Fo example, in a s udy on
chemical companies in India oughly wo decades ago om 1996–1997 o 2005–2006, i was
ound ha di idend policy has a signiﬁcan e ec on he sha eholde ’s weal h (Azhagaiah
and P iya 2008). Va ious o he esea che s also co obo a ed he posi i e impac o di idend
policy on he ﬁ m alue (De We and Mpinda 2013).
While he di ec linea e ec s o age and size o ﬁ m a e unde s andable, i would be
in e es ing o in es iga e how age and size changes he s eng h o ela ionship be ween
ins i u ional and p omo e s’ holdings on di idend payou a io and ﬁ m alue. F om a
heo e ical s andpoin , ﬁ m size and age will ha e signiﬁcan di ec inﬂuence on ﬁ m alue
and di idend payou a io. I is logical ha as he ﬁ m expands in size i is mo e likely o
ha e highe ea nings, and he ﬁ ms will ha e a choice o pay highe di idends. A he
same ime, when a ﬁ m is in he indus y o a long ime ( ep esen ing he age), i is mo e
likely ha i will ha e a conside able size o he ma ke and ha e highe a e o e u ns,
a pa o which may be dis ibu ed as di idends. In his s udy, ou p ima y in e es is o
see he mode a ing e ec o age and size on di idend payou a io and ﬁ m alue. Since
p io esea che s ha e no explo ed his ela ionship, his s udy aims o b idge he gap by
answe ing he ollowing esea ch ques ions (RQs):
RQ1:
How do p omo e s’ holdings e ec di idend payou a io and ﬁ m alue?
RQ2:
How do ins i u ional holdings e ec di idend payou a io and ﬁ m alue?
RQ3:
How does ﬁ m age mode a e he ela ionship be ween p omo e s’ holdings and
(i) di idend payou a io and (ii) ﬁ m alue?
RQ4:
How does ﬁ m size mode a e he ela ionship be ween ins i u ional holdings and
(i) di idend payou a io and (ii) ﬁ m alue?
This s udy makes ﬁ e signiﬁcan con ibu ions o he li e a u e on di idend payou
a io and ﬁ m alue. Fi s , he s udy aligns wi h he s udies in he li e a u e ha show ha
p omo e s’ holdings a e signiﬁcan ly and posi i ely ela ed o di idend payou a io and
ﬁ m alue. Second, consis en wi h pas s udies, his s udy p o ides empi ical e idence ha
ins i u ional holdings ha e a posi i e and signiﬁcan e ec on di idend payou a io and
ﬁ m alue. Thi d, his s udy ound ha he ela ionship be ween p omo e s’ holdings and
di idend payou a io is s onge (posi i e) o olde companies in e ms o age, whe eas
he ela ionship is weake (nega i e) o new ﬁ ms (ﬁ ms o a lowe age). Fou h, he esul s
e eal ha p omo e s’ holdings ha e highe ﬁ m alue o new ﬁ ms when compa ed
o old ﬁ ms. Howe e , ﬁ m alue inc eases exponen ially wi h he inc ease in age o a
ﬁ m. Fi h, o big ﬁ ms, ins i u ional holdings esul in a highe di idend payou a io
and highe alue o he ﬁ m as compa ed o small ﬁ ms. To sum up, he o e simpliﬁed
mode a ed model de eloped and es ed in his esea ch makes a signiﬁcan con ibu ion o
he li e a u e.
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2. Hypo hesis De elopmen
2.1. P omo e s’ Holdings and Di idend Payou Ra io
A p omo e is a pe son o a g oup o pe sons, who a e in ol ed in he inco po a ion
o a co po a ion. P omo e s a e he signiﬁcan pa in he o ganiza ion and managemen o
a business. Acco ding o he Secu i ies and Exchange Boa d o India (SEBI’s) Disclosu e
and In es o P o ec ion Guidelines, 2000 (DIP Guidelines) and Subs an ial Acquisi ion o
Sha es and Takeo e Regula ions, he 1997 (Takeo e Code) “P omo e o P omo e G oup”
exe cise ample con ol o e he company by i ue o hei sha eholding and managemen
igh s (Kuma and Singh 2013). P omo e s’ holdings a e he pe cen age o sha es held by
he p omo e s g oup ou o he o al ou s anding sha es. Companies wi h highe p omo e s’
holdings pay a high di idend o hei sha eholde s by exe cising e ec i e con ol o e
he managemen and educing he cos o agency (A o a and S i as a a 2021; Jawade
2021). P omo e s’ holdings ha e a posi i e e ec on he di idend payou o BSE 500
lis ed companies in India (Gup a 2017). On he con a y, companies wi h mo e han 65 o
70 pe cen
p omo e s’ holdings esul in ha ing a 21.3 pe cen dec ease in he di idend
payou a io, due o highe ax on di idend income (Dhamija and A o a 2019). Ea lie
schola s epo ed ha la ge amoun s o p omo e holding demo i a e he p omo e s o
choose a highe payou a io (Kuma 2006). F om he abo e discussion we hypo hesize he
ela ionship as ollows:
Hypo hesis 1 (H1): P omo e s’ holdings a e posi i ely associa ed wi h di idend payou a io.
2.2. P omo e s’ Holdings and Fi m Value
The adi ional schola s in ﬁnancial managemen ha e empi ically ad oca ed ha
p omo e s’ holdings esul in a dec ease in agency cos and inc ease he ﬁ m alue because
o he es ed in e es s he p omo e s ha e in he weal h o he company (Jensen and
Meckling 1976), since he pe sonal s akes in ol ed a e subs an ial p omo e s’ a emp o
maximize he ﬁ m alue (Shlei e and Vishny 1988). Wang (2018) also ound a non-linea
ela ionship be ween p omo e ’ holdings and ﬁ m alue whe e he ﬁ m alue ﬁ s declines
wi h an inc ease in p omo e ’ holdings and hen upsu ges as p omo e s own mo e sha es.
On he con a y, an inc ease in p omo e s’ holdings has a nega i e e ec on ﬁ m alue, due
o he en enchmen e ec (Demse z 1983). To esol e he con adic o y ﬁndings, Claessens
e al. (2002) sugges ha he e is a h eshold le el o s ock holdings beyond which he
cos s o mino i y sha eholde s ou weigh he beneﬁ s, esul ing in a dec ease in he ﬁ m
alue. Concen a ed p omo e owne ship ep esen s holding a leas ﬁ e pe cen o a
ﬁ m’s sha es (Pandey and Sahu 2019; Sela ka 2005). In e es ingly, Yasse and Mamun (2015)
ound an insigniﬁcan associa ion be ween he owne ship concen a ion and ﬁ m alue.
Though some s udies ound a nega i e associa ion o p omo e s’ holdings wi h ﬁ m alue,
ex an esea ch skewed owa ds posi i e associa ion (Abbasi e al. 2017; AL-Najja 2016;
Denis and McConnell 2003; Gau e al. 2015; Yasse and Mamun 2017). Based on he abo e
a gumen s, he ollowing hypo hesis is o e ed:
Hypo hesis 2 (H2): P omo e s’ holdings a e posi i ely associa ed wi h he ﬁ m alue.
2.3. Ins i u ional Holdings and Di idend Payou Ra io
Acco ding o Koh (2003), ins i u ional owne ship is deﬁned as he numbe o sha es
ou o he o al sha es possessed by ins i u ions a he end o he yea . Ins i u ional holdings
ep esen he owne ship by ins i u ions such as mu ual und companies, pension und
companies, p i a e ounda ions, in es men companies, and o he la ge agen s who manage
unds on behal o o he s (Ra nawa i e al. 2019). Jacob and Jijo Lukose (2018) highligh ed
he ac ha ins i u ional owne ship plays a i al ole in di idend payou a io. Since
ins i u ional in es o s pe iodically moni o he ac ions o chie execu i e o ﬁce s who
make policies abou he decla a ion o a di idend, i is mo e likely ha he g ea e he
ins i u ional holdings in he ﬁ m, he g ea e will be he di idend payou a io (Jensen
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J. Risk Financial Manag. 2023,16, 489
Figu e 4. Fi m size as a mode a o be ween ins i u ional holdings and di idend payou a io.
Figu e 5.
Fi m size as a mode a o in he ela ionship be ween ins i u ional holdings and ﬁ m alue.
5.5. Di ec E ec s o Fi m Age and Fi m Size
This s udy ocuses mainly on he mode a ing e ec o ﬁ m age and ﬁ m size in he
ela ionship be ween p omo o s’ holdings and ﬁ m alue and ins i u ional holdings and
di idend payou a io. Since he mode a o a iables also ha e a di ec inﬂuence (Aiken
and Wes 1991), he di ec hypo hesis o he e ec o mode a o a iables on he dependen
a iables is omi ed by he esea che s. As shown in Table 3, he immedia e e ec s o
ﬁ m age and size on di idend payou a io and ﬁ m alue a e posi i e and signiﬁcan .
Since hese di ec (linea ) e ec s a e unde s andable, we did no hypo hesize hese in
his esea ch.
6. Discussion
This pape a emp s o unde sco e he impo ance o ﬁ m age and size in changing he
s eng h o he ela ionship be ween p omo e s’ holdings, ins i u ional holdings, di idend
payou a io, and ﬁ m alue.
Fi s , i is p oposed ha p omo e s’ holdings would posi i ely impac he di idend
payou a io. The unde lying logic, suppo ed by he ex an esea ch, is ha p omo e s
would like o c ea e an imp ession in he minds o po en ial in es o s abou he posi i e
in en o he company o ake ca e o he sha eholde s h ough good pe iodical di idend
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J. Risk Financial Manag. 2023,16, 489
payou . As he in es o s di e in hei equi emen s, some p e e egula di idends. In
con as , some young in es o s may ca e abou some hing o he han pe iodical di idends,
and a e mo e in e es ed in he ﬁ m’s alue. The e o e, he p omo e s wi h signiﬁcan
holdings would see egula di idends paid o he s ockholde s.
Mo eo e , he highe he p omo e s’ holdings, he mo e con ol o e he business
a ai s, whe eby he p omo e s s eamline he company’s ac i i ies and educe he agency
cos , hus inc easing he di idend payou o he sha eholde s. The p omo e s can also
enjoy his as an incen i e o he moni o ing ole. Thus, he s udy’s ﬁndings co obo-
a ed p e ious ﬁndings (A o a and S i as a a 2021; Gup a 2017). Second, he p omo e ’s
holdings also enhance he ﬁ m’s alue, as hei e o s a e di ec ed owa ds i s success,
measu ed in e ms o ﬁ m alue. So, i is sel -explana o y ha he inﬂuen ial moni o ing
ole o p omo e s’ holdings p omo es e ﬁciency in he u iliza ion o esou ces, hus pa ing
he way o inc easing he ﬁ m’s alue. Thus, he ﬁndings suppo he exis ing li e a u e
(Abbasi e al. 2017; Gau e al. 2015; AL-Najja 2016; Yasse and Mamun 2017). Thi d, he
ins i u ional holdings also ope a e simila ly o p omo e s’ holdings, a ec ing he posi i e
ela ionship be ween di idend payou and ﬁ m alue. Thus, he s udy’s ﬁndings suppo
he p e ious li e a u e (Lin and Fu 2017; Muniandy e al. 2016; Thana awee 2014b).
Rega ding he mode a ion hypo hesis, ﬁ m age mode a es he ela ionship be ween
p omo e s’ holdings on di idend payou a io and ﬁ m alue. Mo eo e , ﬁ m size mod-
e a es he ela ionship be ween ins i u ional holdings’ di idend payou a io and ﬁ m
alue. Thus, he ﬁndings suppo he posi i e mode a ion hypo hesis o p e ious s udies
(Chakk a a hy e al. 2023; Su iawina a and Nu mali a 2022).
6.1. P ac ical Implica ions
The ﬁndings om his s udy ha e se e al implica ions o he companies in e es ed
in unde s anding he an eceden s o ﬁ m alue and di idend payou a io. As many
companies in he pha maceu ical indus y ha e been in he indus y o qui e a long
ime, g owing compe i ion be ween he companies p omp s he op managemen eam o
main ain a sus ained compe i i e ad an age by e aining he exis ing sha eholde s. One
way o doing i is o inc ease he di idend payou , les he sha eholde s mo e ou o he
companies and in es in al e na i e companies ha pay highe di idends. The esul s
om his s udy explain how he ﬁ m alue is impac ed by age and size. When companies
shy away om inc easing hei size, he p esen s udy signals ha i is a good idea o
explo e di e siﬁca ion o in es men s and expand by engaging in ei he a concen ic o
conglome a e s a egy, depending on he a ailable oppo uni ies. This s udy also p o ides
aluable insigh s in o companies in gene al, apa om he pha maceu ical companies,
abou he bounda y condi ions o di idend payou a io and ﬁ m alue.
6.2. Limi a ions and Fu u e Resea ch
E e y esea ch is conﬁned o sample uni s chosen o he s udy. In he co po a e li e a-
u e, nume ous companies ha e di e en accoun ing disclosu e p ac ices, he companies
o banking and ﬁnancial ins i u ions ha e di e en disclosu e no ms, and he p ac ices
o di idend s udy may be di e en among he indus ies. This s udy used 11 yea s o
ﬁnancial da a om 23 BSE S&P Heal hca e Index companies. So, he s udy’s esul s can
be gene alized o he pa icula indus y o ela ed indus ies alone. Mo eo e , he da a
depend on he us wo hiness o he p owess da abase. The s udy pe iod is om 2016
o 2021; he ad e se en i onmen al ac o s may impac he esul s which may change
when gene alizing he esul s in o he pe iods o he s udy. The e o e, u u e esea che s
can include mo e yea s and es he model by ex ending i o o he indus ies in India
and wo ldwide.
Ano he limi a ion o his s udy is he limi ed sample size. We could ocus only on
23 companies
(because we ocused only on he companies ha ha e been paying di idends
con inuously). Fu he , a c oss-indus y analysis would ha e been mo e help ul in en iching
he esul s. I would also be in e es ing o s udy he ela ionships be ween he a iables
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J. Risk Financial Manag. 2023,16, 489
om indus ies in di e en coun ies, and see i he e a e any ma ked di e ences wi h he
ela ionships in he hypo hesized model.
6.3. Conclusions
The p esen s udy de eloped a concep ual model and empi ically examined he
mode a ing ole o ﬁ m age and ﬁ m size in he ela ionship o p omo e s’ holdings,
ins i u ional holdings di idend payou a io, and ﬁ m. The esul s indica e ha ﬁ m age and
ﬁ m size a e he p ominen mode a o s. In his esea ch, he hypo heses es ed a e expec ed
o con ibu e o he bu geoning heo y o ﬁnancial managemen . This s udy p o ides
aluable insigh s o p ac icing manage s in unde s anding he an eceden s and bounda y
condi ions o enhancing ﬁ m alue. This s udy p o ides a enues o u u e esea ch. I
is sugges ed ha u u e s udies may ocus on he ole o o he a iables such as ﬁnancial
le e age and capi al s uc u e in inﬂuencing he alue o he ﬁ m and di idend payou
a io, which may signiﬁcan ly con ibu e o he g owing body o knowledge in ﬁnance.
Au ho Con ibu ions:
Concep ualiza ion, B.C., F.G.I. and A.R.P.; me hodology, R.E., N.R. and S.P.;
so wa e, B.C., A.R.P. and F.G.I.; o mal analysis, B.C., F.G.I. and A.R.P.; in es iga ion, B.C. and A.R.P.;
esou ces, F.G.I., N.R. and R.E.; da a cu a ion, B.C., N.R. and R.E.; w i ing—o iginal d a p epa a ion,
B.C., A.R.P. and S.P.; w i ing— e iew and edi ing, A.R.P., N.R. and S.P.; isualiza ion, B.C., F.G.I. and
A.R.P.; supe ision, F.G.I. and A.R.P.; p ojec adminis a ion, F.G.I. and A.R.P.; All au ho s ha e ead
and ag eed o he published e sion o he manusc ip .
Funding: This esea ch ecei ed no ex e nal unding.
Da a A ailabili y S a emen : Da a will be made a ailable upon eques .
Conﬂic s o In e es : The au ho s decla e no conﬂic o in e es .
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123

Ci a ion: Kanoujiya, Jagjee an, Pooja
Jain, Sou ik Bane jee, Rameesha
Kal a, Shailesh Ras ogi, and Venka a
M udula Bhima a apu. 2023. Impac
o Le e age on Valua ion o
Non-Financial Fi ms in India unde
P oﬁ abili y’s Mode a ing E ec :
E idence in Scena ios Applying
Quan ile Reg ession. Jou nal o Risk
and Financial Managemen 16: 366.
h ps://doi.o g/10.3390/
j m16080366
Academic Edi o : Thanasis S engos
Recei ed: 10 July 2023
Re ised: 4 Augus 2023
Accep ed: 8 Augus 2023
Published: 10 Augus 2023
Copy igh : © 2023 by he au ho s.
Licensee MDPI, Basel, Swi ze land.
This a icle is an open access a icle
dis ibu ed unde he e ms and
condi ions o he C ea i e Commons
A ibu ion (CC BY) license (h ps://
c ea i ecommons.o g/licenses/by/
4.0/).
Jou nal o
Risk and Financial
Managemen
A icle
Impac o Le e age on Valua ion o Non-Financial Fi ms in
India unde P oﬁ abili y’s Mode a ing E ec : E idence in
Scena ios Applying Quan ile Reg ession
Jagjee an Kanoujiya 1, Pooja Jain 2, Sou ik Bane jee 3, Rameesha Kal a 4, Shailesh Ras ogi 1
and Venka a M udula Bhima a apu 5,*
1Symbiosis Ins i u e o Business Managemen , Symbiosis In e na ional (Deemed Uni e si y),
Pune 412115, India; [email p o ec ed] (J.K.); [email p o ec ed] (S.R.)
2Ami y Business School, Ami y Uni e si y, Gwalio 474020, India; [email p o ec ed]
3Managemen De elopmen Ins i u e Mu shidabad, Mu shidabad 742235, India; [email p o ec ed]
4School o Business and Managemen , CHRIST (Deemed o be Uni e si y), Bangalo e 560029, India;
[email p o ec ed]
5
Symbiosis School o Banking and Finance, Symbiosis In e na ional (Deemed Uni e si y), Pune 412115, India
*Co espondence: m [email p o ec ed]
Abs ac :
The ﬁ m’s alua ion (FV) is he key elemen o all s akeholde s, pa icula ly he in es o s,
o hei in es men decisions. The main impe us o his esea ch is o es ima e he e ec s o he
deb a io (DR, i.e., le e age) on he FV (i.e., asse s and ma ke capi alisa ion) o he non-ﬁnancial
ﬁ ms lis ed in India. The quan ile panel da a eg ession (QPDR) on he seconda y da a o 76 non-
ﬁnancial BSE-100 lis ed ﬁ ms in India is employed. This s udy also checks he e ec o he ne p oﬁ
ma gin (NPM) as p oﬁ abili y on he associa ion be ween DR and FV. The QPDR es ima es esul
in mul iple quan iles and p o ide e idence in scena ios. The ﬁndings e eal a posi i e ela ionship
o DR o asse s only in highe quan iles, i.e., 90%ile), and a nega i e associa ion o DR is ound
wi h a ma ke capi alisa ion in all quan iles. Unde he in e ac ion e ec , p oﬁ abili y (NPM) does
no a ec he associa ion o DR wi h asse s bu nega i ely a ec s he associa ion o deb a io wi h
ma ke capi alisa ion in he middle (50%) quan ile. The ﬁndings indica e ha le e age (DR) a ec s a
ﬁ m’s alue. The s udy’s ou comes a e help ul o all s akeholde s, pa icula ly in es o s, o ealise
he le e age (DR) as a c i ical indica o o FV be o e making any in es men decisions. Manage s
should also conside lowe deb a ios o be e ﬁ m alue. The p esen analysis is o iginal and holds
no el y in he o m o he mode a ing ole o he ne p oﬁ ma gin, i.e., he p oﬁ abili y o he ﬁ m
be ween DR and FV in he non-ﬁnancial ﬁ m in India. To he bes o ou knowledge, no such s udies
ha e been pe o med o look o he associa ion o he deb a io wi h a ﬁ m’s alue unde he e ec
o p oﬁ abili y in di e en quan iles using quan ile eg ession.
Keywo ds: deb a io; ﬁ m alue; ne p oﬁ ma gin; sales; p oﬁ abili y
1. In oduc ion
In ligh o he ecen global ﬁnancial c ises due o COVID-19, ins i u ions ha e inc eas-
ingly elied on ﬁnancing loans o some o hei ansien asse s. This si ua ion has enabled
hem o sa is y hei ﬁnancial obliga ions, main ain a highe a e o e u n, and a oid going
bank up . This kind o ﬁnancial choice does no s op he ca as ophe om happening; i
me ely delays i . This s udy in es iga es how he deb s uc u es o non-ﬁnancial ﬁ ms
lis ed on he BSE-100 a ec hei ﬁnancial pe o mance (as alua ion). The deb s uc u e
is a c ucial me ic o assessing pe o mance by he u ilisa ion o esou ces o maximise
ea nings o i s sha eholde s and aise he ins i u ions’ ma ke alue.
E en i he e is a lack o unding, i is di ﬁcul o non-ﬁnancial ins i u ions o p o ide
he equi ed unding, and he managemen o hese ins i u ions in de eloping na ions,
J. Risk Financial Manag. 2023,16, 366. h ps://doi.o g/10.3390/j m16080366 h ps://www.mdpi.com/jou nal/j m
J. Risk Financial Manag. 2023,16, 366
no ably in he non-ﬁnancial ﬁ m in India, is ge ing inc easingly complex. A company’s
ﬁnancial choice is signiﬁcan because i a ec s cu en and u u e cash ﬂows, p oﬁ abili y,
and liquidi y. Financial managemen ’s main objec i e is o make decisions o inc ease he
o ganisa ion’s compe i i e posi ion while maximising owne s’ weal h (Abuamsha and
Shumali 2022).
The capi al s uc u e (CS) inﬂuences no jus he o ganisa ion’s p oﬁ abili y bu also
i s le e age a ios. The ope a ing le e age o en g ows as ﬁxed cos s ise. As a esul ,
ﬁ ms mus cons an ly cu ﬁxed expendi u es o a oid addi ional losses, pa icula ly du ing
imes o c isis. The company’s CS e e s o he a io o equi y and deb esou ces u ilised
o unding he ﬁ m. Few ideas ad oca e ha he di ec o s’ CS choice is c ucial because
he pe o mance co ela es wi h i . Financial le e age is he a io o o al deb o o al
capi al employed. Hence, besides ha ing a big impac on he o ganisa ion’s p oﬁ abili y,
ﬁnancial p oblems caused by CS also subs an ially a ec he mac oeconomic esul s. P oﬁ
maximisa ion and he haza ds in ol ed mus also be weighed in ﬁnancial managemen .
The company needs a ﬁnancing s uc u e ha gua an ees be e p oﬁ abili y and ma ke
alue. CS and DR impac he company’s p oﬁ abili y.
Va ious s udies ﬁnd he connec i i y o le e age wi h a ﬁ m’s pe o mance in e ms o
alua ion. Resea ch such as ha o Ruland and Zhou (2005), Abo (2005), Tayyaba (2013),
and Robb and Robinson (2014) has shown a a ou able e ec on pe o mance. Cheng and
Tzeng (2011), Negash (2001), Phillips and Sipahioglu (2004), and Rahman e al. (2020),
howe e , a gue ha le e age de e io a es he ﬁ m’s pe o mance. Lin and Chang (2011)
indica e no signiﬁcan connec ion be ween le e age and FV. This si ua ion aises he issue
o ha ing esh e idence o he le e age e ec on alua ion.
In Indian con ex , i is e iden ha Indian co po a e has seen se e al co po a e e o ms,
including he implemen a ion o many ules and egula ions like a ious company ac s. The
ecen one is Company Ac 2013 o enhance co po a e pe o mance in India. As discussed
ea lie , le e age is an essen ial componen in a company’s capi al s uc u e. Valua ion is also
a key elemen o an in es o ’s decision o in es in a ﬁ m. Howe e , i s impac on a ﬁ m’s
alua ion is inconclusi e. Mainly, he esea ch on such a opic is concen a ed in de eloped
economies. Eme ging economies like India (one o he as es -g owing economies) need
esh e idence, as se e al egula o y e o ms ha e been wi nessed in his as -g owing
economy. The e o e, i is high ime o es ima e he le e age e ec on FV o non-ﬁnancial
ﬁ ms in India and o p o ide no el e idence.
In o de o answe he p ima y ques ion add essed in his pape , we use panel da a
analysis (PDA) o alida e he gi en hypo heses. The a ionale o u ilising a PDA is ha
i ea u es c oss sec ion and ime. Panel da a analysis has a wide ange o applicabili y in
ﬁnance and economics. The quan ile panel da a eg ession (QPDR) model (G aham e al.
2015) is employed o eg ession analysis. This app oach is also ad an ageous because i
can be e deal wi h he endogenei y p oblem. As a esul , endogenei y in such models is
no a signiﬁcan di ﬁcul y in gene a ing consis en esul s and p o ing ou objec i es. We
in end o ﬁnd he connec ion be ween DR and FV (asse s alue and ma ke capi alisa ion
aken as a p oxy o ﬁ m alue). In his s udy, NPM is used as a p oxy o ﬁ m p oﬁ abili y.
As a esul , he ini ial analysis omi s he ela ionship be ween DR, FV, and he mode a ion
impac o business p oﬁ abili y. Fi s , he di ec e ec o DR on FV may be ha m ul. I he
indi ec ela ionship be ween DR and FV p e ails, analysing p oﬁ abili y as a mode a o
o he ﬁ m alue could elabo a e on he a ied epe cussions o he e ec o DR on FV.
Second, by including sales, “P oﬁ Be o e In e es And Tax” (PBIT), and “ e u n on asse s”
(ROA) as con ol a iables, we would be able o make a compelling case o ﬁnding he
sole impac o DR on alua ion and impac in in e ac ing wi h p oﬁ abili y.
Thus, his pape makes a new con ibu ion o he li e a u e. This s udy ep esen s a
ema kable e o o ﬁnd he mode a ing ole o he ne p oﬁ ma gin, i.e., p oﬁ abili y o he
ﬁ m be ween DR and FV in he non-ﬁnancial ﬁ m in India. To he bes o ou knowledge,
no p io s udy has examined he impac o p oﬁ abili y’s mode a ing ole on he linkage
be ween DR and FV.
125
J. Risk Financial Manag. 2023,16, 366
The ad an age o ou empi ical app oach, he panel da a analysis using quan ile
eg ession, is ha i enables us o in es iga e he con ingen oles o le e age on alua ion
in di e en scena ios (quan iles). This si ua ion p o ides deepe insigh s in o he connec ion
be ween he wo o ha e be e decision-making inpu s. In his pape , we a gue ha he
sales, p oﬁ be o e in e es and ax, and e u n on asse s play a c ucial con ingen ole in
a ﬁ m’s alua ion. The jus iﬁca ion o using sales, PBIT, and ROA as con ol a iables
come om he li e a u e-suppo ed e idence o an empi ical associa ion be ween DR and
FV (Abidin e al. 2021; Ullah e al. 2020; Na iswa i and Nug aha 2020). O e all, ou
a icle sugges s an ad e se co ela ion be ween DR and FV. The cu en ﬁndings gi e clea
implica ion o ocus on po olio di e siﬁca ion and di e siﬁed capi al s uc u e.
The emainde o he pape is o ganised as ollows. The ollowing sec ion p o ides a
ull li e a u e e iew, while Sec ion 3 p o ides da a and he esea ch me hodology. Sec ion 4
o e s he empi ical esul s, b ieﬂy discussing he eason o adop ing a ho ough empi ical
analysis. Sec ion 5 analyses he empi ical ﬁndings, while Sec ion 6 p o ides a summa y
and implica ions. The ﬁnal po ion ﬁnishes wi h sugges ions o u u e s udy ex ensions.
2. Li e a u e Re iew
2.1. Deb S uc u e and Financial Pe o mance
While examining how an o ganisa ion’s deb s uc u e a ec s i s ﬁnancial pe o mance
(FP), Modigliani and Mille (1958) concluded ha FP was una ec ed. They asse ed in
a subsequen s udy, howe e , ha due o high axes and deduc ible in e es a es, hese
o ganisa ions p e e o ﬁnance wi h deb a he han equi y (Modigliani and Mille 1963),
which is consis en wi h he ade-o heo y, which holds ha deb gi es an o ganisa ion a
ax ad an age (Akeem e al. 2014). As a esul , he co po a ion should ake on mo e deb o
imp o e pe o mance, which will lowe axes and boos ROA (Sai -Alyousﬁ e al. 2020).
This iewpoin is also suppo ed by Ni ajini and P iya (2013). Homapou e al. (2022)
s udied B i ish ﬁ ms, and hey ound ha le e age imp o es he ma ke pe o mance o
s ocks and educes ma ke isk (ﬁnancial). Since his s udy aims o empi ically es he DR
and FV nexus wi h a mode a ion inﬂuence on p oﬁ abili y, ou examina ion o he li e a u e
will ocus on his s udy a ea.
Le e age o deb a io and FP ha e been he subjec o se e al p io empi ical in es i-
ga ions. The esul s o hese in es iga ions a e blended. On one side, speciﬁc esea che s
such as Ruland and Zhou (2005), Abo (2005), Tayyaba (2013), and Robb and Robinson
(2014) disco e ed he connec ion be ween FP and le e age. Acco ding o Robb and Robin-
son (2014), using deb boos s FP esul ing in g ea e e u ns han he a e age in e es
cos s associa ed wi h a ﬁ m’s le e age. These ﬁndings can be jus iﬁed in ligh o ea lie ,
signiﬁcan s udies like hose o Modigliani and Mille (1958) and Ruland and Zhou (2005),
which asse ed ha p oﬁ able companies ad e ise quali y by aising hei le e age. This
si ua ion leads o he posi i e connec i i y o p oﬁ abili y o le e age. The esea ch o
Saleem e al. (2013) and T ipa hy and Shaik (2020) on a Sou h Asian Oil and gas ﬁ m
in es iga ed how le e age impac s p oﬁ abili y. The s udy concluded ha ﬁnancial and
ope a ing le e age conside ably impac he p oﬁ abili y a ios. Rahman e al. (2020) aimed
o in es iga e how he DR a ec s a sample o Pakis ani en e p ises’ ﬁnancial esul s. Some
showed ha le e age has a de imen al e ec on FP, including Cheng and Tzeng (2011),
Negash (2001), and Phillips and Sipahioglu (2004), while o he s indica ed no link be ween
le e age and business success. Acco ding o Cheng and Tzeng (2011), he le el o le e age
esul s in agency issues ha indica e a weak connec ion be ween le e age and FP. Lin
and Chang (2011) ound wo h eshold e ec s be ween le e age and FP, using deb as a
h eshold o Taiwanese en e p ises. A ise in le e age is ollowed by an imp o emen in
FP as de e mined by Tobin’s Q i he DR is low. The e is no p oo o a connec ion be ween
le e age and FP when i is high. As in pas s udies, he deb a io is used as a h eshold,
which e alua es he connec i i y o le e age o ROE, he Vie namese ﬁ ms’ me ic o ﬁ m
success.
126
J. Risk Financial Manag. 2023,16, 366
Many s udies examined he connec ion be ween le e age and ROE, hei measu e
o business pe o mance, and he ela ionship be ween company size and FP in India
and o he de eloping coun ies. Pandey and Ponni (2017) analysed how CS a ec s he
pe o mance o lis ed Indian companies, ocusing on he pha maceu ical indus y. A simila
s udy conduc ed in Nige ia (Onaolapo and Kajola 2010; Chen e al. 2019) suppo ed he
agency cos s heo y’s claim by showing how a high deb a io signiﬁcan ly nega i ely
impac s FP indica o s like ROA and ROE.
Goel e al. (2022) used deb ﬁnancing as a subs i u e o CS and p oﬁ e ﬁciency
as a subs i u e o business success in o de o analyse he impac o CS on indus ial
pe o mance in India. These ﬁndings, consis en wi h pas esea ch, demons a e li le
co ela ion be ween pe o mance and deb ﬁnancing. By simula ing he CS wi h deb and
he FP wi h ROA and e u n on capi al employed (ROCE), i is possible o examine he CS
and FP o S i Lanka’s lis ed companies (P a heepkan h 2011; Yinusa e al. 2021). The esul s
show ha he e is a bad co ela ion be ween le e age and FP. Hence, inc easing deb has a
nega i e impac on he FP o he o ganisa ion.
No esea ch has ye been conduc ed on he possible inﬂuence o p oﬁ abili y (NPM)
on he impac o DR on ﬁ m alue. We p opose o b idge his gap in he li e a u e by
employing a mo e open-ended empi ical deﬁni ion ha pe mi s a wide ange o po en ial
ela ionships be ween he deb a io and ﬁ m alue.
2.2. P oﬁ abili y, Le e age and Fi m Value
High p oﬁ abili y sugges s posi i e business p ospec s, and in es o s will ake hese
signals a ou ably, inc easing he ﬁ m’s wo h. This si ua ion makes sense because a
ﬁ m’s abili y o p oduce highe p oﬁ s sugges s ha he company is pe o ming well,
which encou ages in es o s o be op imis ic and d i es up he company’s s ock p ice.
The company’s alue ises along wi h ma ke s ock p ices. Acco ding o Te ps a and
Ve bee en’s (2014) esea ch, p oﬁ abili y a ios—measu ed by ROI o ROA—signiﬁcan ly
impac he company’s alue.
A company’s o al asse s, which comp ise i s esou ces, a e used o calcula e ROA, a
p oﬁ abili y me ic. This a io shows how well managemen uses he o al asse s o p oduce
p oﬁ s. The ROA in o ms he business o he p oﬁ s om he capi al in es ed (asse s). The
ROA a ies om company o company and h oughou indus ies; he e o e, using i as
a compa a i e indica o should be done cau iously, aking in o accoun he company’s
pe o mance his o y and compa ing i o ha o i als and simila businesses in he same
indus y (Habib e al. 2016).
A combina ion o deb and equi y is used o ﬁnance he ﬁ m’s asse s and und he
business’s ope a ions. The ROA gauges how success ully an o ganisa ion con e s in es ed
capi al in o ne income du ing ope a ions. High ROA indica es be e esou ce u ilisa ion,
ansla ing in o highe FP (Gibson 2012).
When assessing a company’s abili y o p oduce sha eholde alue, in es o s look
a me ics including ROA, deb - o-asse a io (DAR), cu en a io (CR), ﬁ m size, and
di idend payou a io (DPR). While es ablishing an FV, p oﬁ abili y is an impo an consid-
e a ion. The p oﬁ abili y me ic is he ROA. An indica o o he con ibu ion ha asse s
con ibu e o ne income is he ROA a io (Ullah e al. 2020). ROA impac s FV, acco ding o
(Phuong e al. 2020). A signiﬁcan p oﬁ indica es p omising co po a e u u es, encou aging
in es o s o enhance s ock demand and aising ﬁ m alue.
Ope a ing le e age is inﬂuenced by he numbe o ﬁxed cos s; hence, a highe pe -
cen age o ﬁxed cos s deno es signiﬁcan ope a ional le e age. As a esul , ope a ing
income will ﬂuc ua e wi h e e y change in sales. Also, he o ganisa ion may be exposed
o isk due o he subs an ial ope a ing le e age. Rega dless o he business’s sales, ﬁxed
expenses mus be paid, including manu ac u ing o e head, equipmen dep ecia ion, and
main enance cos s (Gi man and Zu e 2015).
In es o s mus ake in o accoun a company’s size when es ima ing i s wo h. Thaku
and Wo kman (2016) claim ha a company’s sales, capi al, and o al asse s can be used o
127
J. Risk Financial Manag. 2023,16, 366
Table 5. Va iance inﬂa ion ac o (VIF).
Va iable
(DV:lasse ) DR NPM lsales lpbi ROA DR NPM
VIF 1.542 1.230 1.649 1.496 1.544 1.246
Va iable
(DV:lasse ) DR NPM lsales lpbi ROA DR NPM
VIF 1.543 1.230 1.650 1.497 1.544 1.246
No e: VIF < 3 shows no mul icollinea i y.
4.4. Reg ession Resul s
Tables 6 and 7 demons a e he eg ession esul s o QPDR analysis. Table 6 shows he
esul s o base models (Models 1 and 2). In Model 1, i is e iden ha ‘DR’ is insigniﬁcan
in he ﬁ s wo quan iles (i.e., a 10%ile and 50%ile). Howe e , i is bo h signiﬁcan (a
5% signiﬁcance) and op imis ic, wi h a alue o 1.309 in he 90%ile. I indica es ha DR
posi i ely a ec s lasse (ﬁ m’s alue) a he 90%ile (highe quan ile). The con ol a iables
lsales and lpbi a e bo h signiﬁcan and posi i e a he 10%ile % and 50%ile %. The con ol
a iable ROA is ound nega i e a all quan iles. Howe e , he lsales is insigniﬁcan in he
90%ile quan ile. In Model 2, DR is ound signiﬁcan and nega i e in all h ee quan iles
(10%ile, 50%ile, and 90%ile). Hence, i implies ha DR is de imen al o he ﬁ m’s ma ke
capi alisa ion (lmcap). The con ol a iable ‘lsales’ is ound signiﬁcan and nega i e in
he 10%ile and 50%ile. Howe e , i is insigniﬁcan in he 90%ile. ‘lpbi ’ is signiﬁcan and
posi i e in all quan iles. Howe e , ROA is insigniﬁcan o lmcap in all quan iles.
Table 6. Resul s o quan ile eg essions (wi h base a iable).
lasse lmcap
Coe . S d. E . pCoe . S d. E . p
Quan ile (10)
DR −0.093 0.261 0.721 −2.103 * 0.348 0.000
lsales 0.133 * 0.047 0.005 −0.124 *** 0.072 0.088
lpbi 0.799 * 0.069 0.000 0.975 * 0.076 0.000
ROA −0.413 * 0.027 0.000 −0.029 0.062 0.637
Quan ile (50)
DR 0.094 0.102 0.358 −1.151 * 0.148 0.000
lsales 0.058 * 0.021 0.006 −0.069 * 0.018 0.000
lpbi 0.941 * 0.021 0.000 0.768 * 0.022 0.000
ROA −0.646 * 0.018 0.000 0.011 0.025 0.648
Quan ile (90)
DR 1.309 ** 2.144 0.032 −0.737 ** 0.262 0.005
lsales −0.031 −0.214 0.830 0.003 0.031 0.918
lpbi 0.719 * 4.770 0.000 0.643 * 0.034 0.000
ROA −0.415 ** −2.854 0.004 0.045 0.039 0.244
No e: *, **, and *** a e o p- alue is signiﬁcan a 1%, 5%, and 10%.
While conside ing he in e ac ion e ec in Model 3 (Table 7), DR has an insigniﬁcan
coe ﬁcien in all quan iles in he case o lasse . The mode a ing a iable NPM in he
10%ile and 50%ile is insigniﬁcan o lasse bu signiﬁcan and posi i e in he 90%ile.
The in e ac ion e m (i_DR_NPM) is insigniﬁcan in all quan iles. I means ha NPM
(p oﬁ abili y) does no a ec he associa ion o DR wi h lasse . The con ol a iable ‘lsales’
is ound signiﬁcan only in he 50%ile a 5% signiﬁcance. O he con ol a iables, ‘lpbi ’
and ‘ROA’, a e signiﬁcan in all quan iles. Howe e , lpbi is posi i e and ROA is nega i e.
In Model 4, DR has a nega i e and signiﬁcan coe ﬁcien (
−
1.610 and
−
1.044, espec i ely)
in he 10%ile and 50%ile. Howe e , DR is insigniﬁcan o lmcap a he 90%ile. I means
DR is de imen al o a ﬁ m’s alue in e ms o ma ke capi alisa ion. The in e ac ion e m
(i_DR_NPM) is nega i e and signiﬁcan a he 50%ile. I implies ha NPM (p oﬁ abili y)
as mode a o a ec s he ela ionship be ween DR and lmcap (ma ke capi al). Mo eo e ,
he nega i e coe ﬁcien indica es ha while p oﬁ abili y is high, DR dec eases he ﬁ m’s
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