Good Governance and Sustainable Investment: The Effects of Governance Indicators on Stock Market Returns

Susilo Darsono, Wing-Keung Wong, Tran Thai Ha Nguyen, Hafsah Fajar Jati and Diah Setyawati Dewanti
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Tran Thai Ha Nguyen: Department of Business Administration, College of Management, Asia University, Taichung, Taiwan
Hafsah Fajar Jati: Department of Economics, Faculty of Economics and Business, Universitas Muhammadiyah Yogyakarta, Yogyakarta, Indonesia
Diah Setyawati Dewanti: Department of Economics, Faculty of Economics and Business, Universitas Muhammadiyah Yogyakarta, Yogyakarta, Indonesia

Advances in Decision Sciences, 2022, vol. 26, issue 1, 69-101

Abstract: This research uses the WGI data as proxied of good governance and employs The Fixed Effect Model (FEM) and Random Effect Model (REM) on the panel data from the sustainable stock market returns of six Asian countries to examine the relationship among variables. Further, the Feasible Generalized Least Squares (FGLS) Regression panel regression was conducted to achieve robust findings. Our empirical analysis found that political stability and absence of violence (PSA) and regulatory quality (REQ) positively influence sustainable investment returns in the Asian region. While control of corruption (COC) exhibits a significant negative impact on sustainable investment returns. These findings imply that more excellent political stability and reasonable regulations contribute to higher stock market returns. Conversely, contradictory with the Control of Corruption leads to downward stock market returns as the growth of the COC index increases. Our empirical analysis found that political stability and absence of violence (PSA) and regulatory quality (REQ) positively influence sustainable investment returns in the Asian region. While control of corruption (COC) exhibits a significant negative impact on sustainable investment returns. These findings imply that more excellent political stability and reasonable regulations contribute to higher stock market returns. Conversely, contradictory with the Control of Corruption leads to downward stock market returns as the growth of the COC index increases. This research has several crucial policy implications for sustainable investors concerning the country-level governance index to create profitable and sustainable portfolio strategies. Moreover, policymakers should strengthen the implementation of anti-corruption to increase the sustainable investors in the Asian region. This research contributes to the recent literature presenting causal relations of quality country-level governance on sustainable investment returns in the Asian region.

Keywords: Sustainable Investment; Market Returns; World Governance Indicators; Asian Market (search for similar items in EconPapers)
JEL-codes: C33 E44 G15 O16 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:aag:wpaper:v:26:y:2022:i:1:p:69-101

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