Competing Institutional Logics in Corporate ESG: Evidence From Developing Countries

Wahyu Jatmiko, Houcem Smaoui and Nur Dhani Hendranastiti

Business Strategy and the Environment, 2025, vol. 34, issue 5, 6184-6209

Abstract: Drawing on competing institutional logics theory, we examine the institutional complexity of corporate sustainability practices in an underexplored context of developing economies. Analyzing 11,757 firm‐year observations from 19 emerging countries across Africa, Asia, Europe, and South America between 2013 and 2022, we document a U‐shaped relationship between ESG performance and firm value, with financial performance failing to mediate this nexus. This indicates that the market remains the dominant institutional logic in corporate ESG. Shareholders initially penalize firm value when companies increasingly incorporate community logic through ESG initiatives, despite their positive impact on profitability. However, as the benefits of ESG strategies become more apparent, shareholder valuation improves, allowing market and community logics to coexist. We term this temporality of logics the “transient penalty zones.” Our findings highlight the need to eliminate transient penalty zones through effective communication and standardized sustainability disclosure to prevent greenwashing and sustain investor trust.

Date: 2025
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