Green Governance: How ESG Initiatives Drive Financial Performance in UK Firms?

Ahmed Saber Moussa, Mahmoud Elmarzouky () and Doaa Shohaieb
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Ahmed Saber Moussa: Ministry of Finance Egypt, Cairo 11635, Egypt
Mahmoud Elmarzouky: Andrews Business School, University of St. Andrews, St. Andrews KY16 9RJ, UK
Doaa Shohaieb: Aston Business School, Aston University, Birmingham B4 7ET, UK

Sustainability, 2024, vol. 16, issue 24, 1-25

Abstract: In this research endeavor, we investigate the potential influence exerted by ESG performance on the market capitalization of non-financial corporations included within the UK FTSE All-Share Index during the eleven-year period spanning 2010 to 2021. Integrating insights from Resource-Based View and Stakeholder Theory, this research extends the literature by considering the moderating effect of governance on the ESG–market capitalization association. This study analyzes a comprehensive dataset of UK firms, employing robust econometric techniques to substantiate its conclusions. The results demonstrate a robust positive association between the overall ESG pillars and market capitalization. Environmental, social, and governance performances independently contribute to an increased market value. The analysis reveals that firms with superior internal governance structures, characterized by the presence of independent board members, board size, an independent audit committee, and the implementation of a split CEO–chair structure, experience a magnified positive impact from ESG disclosures on market capitalization. Effective governance mechanisms enhance the credibility and effectiveness of ESG initiatives, aligning them with stakeholder expectations and regulatory standards. This alignment fosters trust and cooperation, driving better financial performance and increasing market value. This research adds its voice to the increasingly compelling body of evidence that underscores the financial advantages associated with ESG integration and highlights the critical role of internal governance in amplifying these benefits. The findings have significant implications for policymakers, investors, and corporate managers. They advocate for the strategic incorporation of ESG criteria into corporate governance frameworks to achieve sustainable financial success.

Keywords: ESG; market capitalization; financial performance; internal governance; resource-based view; stakeholder theory; sustainability (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:16:y:2024:i:24:p:10894-:d:1542298

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