MODERATING EFFECT OF REGULATORY QUALITY ON CORPORATE GOVERNANCE AND ESG PERFORMANCE IN EMERGING MARKETS

Abstract

This study aims to examine the relation between ESG scores and corporate governance of listed companies in emerging markets and considers the moderator role of regulatory quality on this relationship. The sample in this study includes listed firms from seven emerging countries, such as Brazil, Russia, China, South Africa, Mexico, Colombia, and Vietnam, between 2010 and 2022. This study applies the fixed effect OLS and further uses System GMM to address endogeneity issues in the empirical model. The results indicate that factors of corporate governance, such as board size, the presence of women on the board, and independent members of the audit committee, positively affect ESG performance. Moreover, the results of this study contribute to the institutional theory by demonstrating the moderating role of regulatory quality of government on the relation between corporate governance and ESG score. The implications of our study show that the improvement of the ESG score is not only reliant on internal corporate governance but also on governmental support through fostering transparent, effective regulatory frameworks to enhance the implementation of ESG strategies of listed companies.