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ESG disclosure and firm performance before and after IR: The moderating role of governance mechanisms

Khaldoon Albitar (Department of Accounting and Financial Management, Portsmouth Business School, University of Portsmouth, Portsmouth, UK)
Khaled Hussainey (Portsmouth Business School, University of Portsmouth, Portsmouth, UK)
Nasir Kolade (Department of Accounting and Finance, University of Northampton, Northampton, UK)
Ali Meftah Gerged (Leicester Castle Business School, De Montfort University, UK and Faculty of Economics, Misurata University, Misrata, Libya)

International Journal of Accounting & Information Management

ISSN: 1834-7649

Article publication date: 27 March 2020

Issue publication date: 18 June 2020

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Abstract

Purpose

This paper aims to investigate the effect of environmental, social and governance disclosure (ESGD) on firm performance (FP) before and after the introduction of integrated reporting (IR) further to exploring a potential moderation effect of corporate governance mechanisms on this relationship.

Design/methodology/approach

Ordinary least squares and firm-fixed effects models were estimated based on data related to FTSE 350 between 2009 and 2018. The data has been mainly collected from Bloomberg and Capital IQ. This analysis was supplemented with applying a two-stage least squares (2 SLS) model to address any concerns regarding the expected occurrence of endogeneity problems.

Findings

The results show a positive and significant relationship between ESGD score and FP before and after 2013, among a sample of FTSE 350. Furthermore, the study is suggestive of a moderation effect of corporate governance mechanisms (i.e. ownership concentration, gender diversity and board size) on the ESGD-FP nexus. Additionally, this paper finds that firms voluntarily associated with IR have a tendency to achieve better firm financial performance.

Practical implications

The findings of the present study have several policy and practitioner implications. For example, managers may engage in ESGD to enhance their firms’ financial performance by the voluntary involvement in IR, which believed to help investors to rationalise their investment decisions. Likewise, the results reiterate the crucial need to integrate more social, environmental and economic regulations to promote sustainability in the UK. The paper also offers a systematic picture for policymakers in the UK as well as future researchers.

Social implications

The findings of this paper indicate that IR plays a significant role in the relationship between ESGD and FP, where IR firms seemed to be achieving better FP as compared with their non-IR counterparts. This implies that stakeholders may have played a magnificent effort to encourage firms’ voluntary engagement in IR in the UK.

Originality/value

To the best of the authors’ knowledge, this is the first study to explore the potential moderating effect of ownership concentration, gender diversity and board size on the relationship between ESGD and FP and to examine whether firms’ voluntary involvement in IR can lead to better FP after the introduction of IR in 2013 in the UK.

Keywords

Acknowledgements

The authors gratefully acknowledge the constructive comments and suggestions given by colleagues and attendees at the 13th Research and Innovation Conference, University of Portsmouth.

Citation

Albitar, K., Hussainey, K., Kolade, N. and Gerged, A.M. (2020), "ESG disclosure and firm performance before and after IR: The moderating role of governance mechanisms", International Journal of Accounting & Information Management, Vol. 28 No. 3, pp. 429-444. https://doi.org/10.1108/IJAIM-09-2019-0108

Publisher

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Emerald Publishing Limited

Copyright © 2020, Emerald Publishing Limited