Firm environmental, social, governance and financial performance relationship contradictions: Insights from institutional environment mediation

Empirical studies examining firm environmental, social, governance [ESG] and financial performance have provided contradictory results. The institutional difference hypothesis (Julian and Ofori-Dankwa, 2013) has portrayed that embedded legal, cultural, social, and economic institutional environment could be behind such results. Therefore, our motivation in this study is to examine whether country-specific legal origin (civil vs. common law), investors protection rights (strong vs. weak), national culture (ESG-averse vs. ESG-seeking), and corruption level (low vs. high) play a mediating role in nourishing firm ESG performance to strengthen or weaken its financial performance around the world. Our findings show that common law countries firms, firms from ESG-seeking national culture, and firms operating in high corruption environment undertake more ESG performance to improve their financial performance. Furthermore, strong investors protection rights negatively mediate firm ESG and financial performance relationship. Economic status of a country takes an important role only in case of emerging economies firms.