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The role of ESG performance in the nexus between economic policy uncertainty and corporate investment

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  • Zhang, Cong
  • Farooq, Umar
  • Jamali, Dima
  • Alam, Mohammad Mahtab

Abstract

In an era of economic globalization, the stability and sustainability of investment decisions have gained paramount importance. In view of this, the main focus of this study is to investigate how environmental, social, and governance (ESG) performance moderates the connection between economic policy uncertainty (EPU) and corporate investment (CINV). To achieve this objective, a comprehensive dataset spanning 13 years, from 2010 to 2022, covering BRICS nations, were employed. The findings reveal a negative impact of EPU on corporate investment. EPU-induced uncertainties create a climate of risk aversion, leading firms to delay or reduce their investment in long-term projects. In contrast, the analysis highlights a positive and significant relationship between ESG performance scores and corporate investment. Firms with strong ESG performance are more inclined to invest, driven by factors such as enhanced reputation, cost reduction, and sustainable market access. The research unveils a crucial aspect of ESG performance as it plays a moderating role in the EPU-investment relationship. This research contributes to the existing literature by addressing a critical gap, focusing on the moderating role of ESG performance in the EPU-investment relationship. The novelty of study lies in its holistic approach to examining the interconnected dynamics between EPU, CINV, and the moderating influence of environmental, social, and governance (ESG) performance. The findings offer practical guidance for investors and corporate managers.

Suggested Citation

  • Zhang, Cong & Farooq, Umar & Jamali, Dima & Alam, Mohammad Mahtab, 2024. "The role of ESG performance in the nexus between economic policy uncertainty and corporate investment," Research in International Business and Finance, Elsevier, vol. 70(PB).
    • Handle: RePEc:eee:riibaf:v:70:y:2024:i:pb:s027553192400151x
    DOI: 10.1016/j.ribaf.2024.102358
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    More about this item

    Keywords

    BRICS; Corporate investment; Economic policy uncertainty; ESG performance; ESG scores;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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