Assessing the moderating role of ESG performance on corporate governance and firm value in developing countries

Figures & data

Table 1. Population and sampling.

Sub Saharan Africa	Selected listed companies	Selected unlisted companies	Total
Eastern Africa	35	65	100
Central Africa	30	60	92
Western Africa	37	55	90
Southern Africa	25	55	80
Total	127	235	362

Table 2. Checklist for ESG performance index.

ESG theme	Dimension	Code	Description
Environmental	Energy efficiency	EP1	Measures the company’s ability to optimize energy consumption within its operations and facilities
	Carbon footprint	EP2	Focuses on the company’s attempts to lessen its influence on climate change as well as its greenhouse gas emissions
	Biodiversity conservation	EP3	Examines the company’s initiatives to protect and enhance biodiversity in its operations and supply chain
	Eco-friendly packaging	EP4	Evaluates the use of sustainable and eco-friendly packaging materials and practices
	Waste management	EP5	Assesses the company’s approach to handling, minimizing, and recycling waste materials
Social	Community engagement	SP1	Evaluates the extent to which the company actively engages with and supports local communities
	Human rights	SP2	Examines the company’s commitment to upholding and respecting human rights, both within its workforce and supply chain
	Labor practices	SP3	Focuses on the treatment of employees, encompassing aspects like diversity, safety, fair labor practices, and working conditions
	Social influence investments	SP4	Measures the company’s investments in projects with a positive social influence
Governance	Anti-corruption practices	GP1	Examines the company’s efforts to prevent and combat corruption in all aspects of its operations
	Ethics and transparency	GP2	Assesses the company’s commitment to ethical practices, transparency in reporting, and CG
	Diversity and Independence on the Board	GP3	Assesses the board of directors’ diversity and independence
	Executive compensation fairness	GP4	Assesses the fairness and transparency of executive compensation practices

Table 3. Summary of the variables.

Categories of variables	Variables	Symbol	Measurement	Expected sign
Dependent variable	Firm value	FV	The average price of the company’s stock over a specified period (a year)
Independent variables	Gender diversity	GEND	calculated as the total number of female board members	+
	Foreign nationals	FNAS	The total number of foreign nationals on the board	+
	Board size	BSIZ	The total number of board of directors	+
	Board independence	BIND	The number of non-executive directors on the board	+
	CEO duality	CEOD	If the CEO is the same as the Chairman, 0 is assigned to that firm. If the CEO is not the same as the Chairperson, we give 1 to the firm	+
	Board meetings	BM	The total number of times the board had meetings, regularly or in emergency circumstances	+
	Meeting attendance	MA	The number of times a member of the board attends meetings	+
Moderating variable	Environmental, social, and governance performance	ESG	Sum of ESG activities reported in the company’s annual report/optimal disclosure scores	+
Control variables	Profitability	ROCE	Earnings before tax and interest divided by capital employed	+
	Ownership concentration	OC	Number of shares held by the biggest shareholder as a proportion of all outstanding shares (%)	+
	Leverage	LEV	The total debts divided by equity at the end of the year	−
	Firm age	FAGE	The number of years since the inception of the company	−

Table 4. Cross-sectional dependency test – Frees.

Frees’ test of cross-sectional independence = −0.067
Critical values from Frees’ Q distribution
alpha = 0.10:	0.2136
alpha = 0.05:	0.2838
alpha = 0.01:	0.4252

Table 5. CIPS unit test.

Variable	Level		First difference
	Constant	Constant & trend	Constant	Constant & trend
LNFV	−3.082	−3.696	−3.587	−3.918
LNGEND	−3.225	−3.851	−4.385	−4.677
LNFNAS	−3.352	−3.705	−3.545	−3.878
LNBSIZ	−3.004	−3.820	−3.647	−4.243
LNBIND	−3.331	−3.582	−3.805	−3.971
LNCEOD	−2.972	−3.061	−3.548	−3.826
LNBM	−2.267	−2.914	−3.003	−3.897
LNMA	−2.154	−2.587	−3.110	−3.730
LNESG	−2.495	−2.975	−3.603	−3.970
LNROCE	−3.634	−3.940	−4.136	−4.442
LNOC	−3.018	−3.919	−4.252	−4.802
LNLEV	−2.119	−2.452	−3.262	−3.681
LNFAGE	−2.150	−2.500	−3.011	−3.693

Table 6. Pedroni trend.

	Statistic	p-Value
Modified Phillips–Perron t	2.9658	0.0015
Phillips–Perron t	−10.5493	0.0000
Augmented Dickey–Fuller t	−9.3222	0.0000

***, **, *For 1, 5 and 10%, respectively.

Table 7. Estimation results.

Variables	Panel A		Panel B		Panel C
	R1	R2	R1	R2	R1	R2
LNGEND	0.0543***	0.0421***	0.0475**	0.0218	0.0615***	0.0463***
LNFNAS	0.0842***	0.0482**	0.0453**	0.0052*	0.0436***	0.0372***
LNBSIZ	0.0541***	0.0427***	0.0485*	0.1542	0.0374**	0.0584**
LNBIND	0.0452***	0.0251**	0.0645*	0.0362*	0.0829***	0.0327***
LNCEOD	−0.0428***	−0.0436***	−0.0387**	−0.0326***	−0.0162**	−0.0265***
LNBM	0.04361*	0.0653*	0.0483**	0.03031*	0.0452***	0.0238**
LNMA	−0.0406**	−0.0308**	−0.0643**	−0.0345**	−0.0724*	−0.0049**
LNROCE	0.0526**	0.0345**	0.0683*	0.0253*	0.0734*	0.0561**
LNOC	0.0453**	0.0352*	0.0742**	0.2324**	0.0528**	0.0631*
LNLEV	−0.0673	−0.0431	−0.0257	−0.1571	−0.1238	−0.1432
Sargan Test/Wald chi^2	481.76	1298.43	889.51	1752.62	1272.24	5314.62
AR^2/Prob > chi^2	0.613	0.0000	0.721	0.0000	0.796	0.0000
OBS	1651	1651	3055	3055	4706	4706

***, **, *For 1, 5 and 10%, respectively.

Table 8. Moderating results.

Variables	Panel A		Panel B		Panel C
	R1	R2	R1	R2	R1	R2
LNGEND	0.211***	0.3771***	0.1221**	0.2149**	0.1141***	0.0955
LNGEND*ESG	0.7785***	0.6725***	0.6435**	0.5345	0.8854***	0.6845***
LNFNAS	0.1321***	0.2103***	0.0651**	0.3655**	0.1811**	0.3761**
LNFNAS*ESG	0.0945**	0.8617***	0.5823**	0.5622*	0.5751**	0.3658**
LNBSIZ	0.2195***	0.0477**	0.0321**	0.3071***	0.0688**	0.0657**
LNBSIZ*ESG	0.8312***	0.6281***	0.7385	0.5842	0.8151**	0.6845*
LNBIND	0.0871**	0.207***	0.0688**	0.0811*	0.0901*	0.0736*
LNBIND*ESG	.05912**	0.4872**	0.5362*	0.3242*	0.7251***	0.5842**
LNCEOD	−0.0836**	−0.0497*	−0.0477	0.0321**	−0.0121*	−0.0412**
LNCEOD*ESG	−0.9481***	−0.7745***	−0.4146***	−0.3256***	−0.2745***	−0.6845***
LNBM	−0.0903**	−0.123**	−0.0645***	0.0191	−0.0134*	0.4187***
LNBM*ESG	0.6624**	0.7951*	0.4813**	0.4331*	0.5835***	0.5344**
LNMA	−0.091***	−0.0257	0.315***	0.0688**	−0.0811**	−0.4128***
LNMA*ESG	−0.6835**	−0.4172*	−0.6323**	−0.4305**	−0.5873***	−0.3635***
LNESG	0.1306**	0.0951***	0.1671**	0.0492**	0.1871**	0.2661*
LNROCE	0.2231***	0.4275*	0.3684	0.3211**	0.2142***	0.4426*
LNOC	0.1321*	0.6331	0.5242**	0.1274	0.24S83*	0.3351***
LNLEV	−0.1693	0.4215*	−0.3254	−0.4278**	−0.2794**	−0.2635
Sargan Test/Wald chi^2	571.76	998.43	1169.51	2952.62	1265.51	5721.41
AR^2/Prob > chi^2	0.624	0.0000	0.752	0.0000	0.795	0.0000
OBS	1651	1651	3055	3055	4706	4706

***, **, *For 1, 5 and 10%, respectively.

Table 9. Additional robustness checks.

Variables	Two-stage least squares (2SLS)
	Panel A	Panel B	Panel C
LNGEND	0.0512***	0.0413***	0.0621**
LNFNAS	0.0387**	0.02531**	0.0318***
LNBSIZ	0.0615***	0.0312***	0.0265**
LNBIND	0.0413***	0.0412**	0.0516
LNCEOD	−0.0736*	−0.2014	−0.0723***
LNBM	0.0428***	0.0421	0.0218*
LNMA	−0.0541***	−0.0301	−0.0321**
Control variables	Yes	Yes	Yes
Industry control	Yes	Yes	Yes
Year control	Yes	Yes	Yes
Sargan Test	73.1	92.2	123.6
F-statistics	46.328**	66.123*	85.23**
Obs	1651	3055	4706

***, **, *For 1, 5 and 10%, respectively.

Data availability statement

The data that support the findings of this study are available from the corresponding author, [A.O.A], upon reasonable request.