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

Author

Listed:
  • Susilo Nur Aji Cokro Darsono

    (Department of Business Administration, College of Management, Asia University, Taichung, Taiwan)

  • Wing-Keung Wong

    (Department of Finance, Fintech Center, and Big Data Research Center, Asia University)

  • 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)

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.

Suggested Citation

  • Susilo Nur Aji Cokro Darsono & Wing-Keung Wong & Tran Thai Ha Nguyen & Hafsah Fajar Jati & Diah Setyawati Dewanti, 2022. "Good Governance and Sustainable Investment: The Effects of Governance Indicators on Stock Market Returns," Advances in Decision Sciences, Asia University, Taiwan, vol. 26(1), pages 69-101, March.
    • Handle: RePEc:aag:wpaper:v:26:y:2022:i:1:p:69-101
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    Citations

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    Cited by:

    1. Kashif Islam & Ahmad Raza Bilal & Zeeshan Saeed & Samina Sardar & Muhammad Husnain Kamboh, 2023. "Impact of government integrity and corruption on sustainable stock market development: linear and nonlinear evidence from Pakistan," Economic Change and Restructuring, Springer, vol. 56(4), pages 2529-2556, August.

    More about this item

    Keywords

    Sustainable Investment; Market Returns; World Governance Indicators; Asian Market;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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