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Internal monitoring mechanisms and corporate environmental and social performance: Evidence from Korea

Author

Listed:
  • Lee, Nam Gyoung
  • Han, Seung Hun
  • Kim, Hyeong Joon

Abstract

This study investigates the relationship between corporate environment and social (ES) performance and the governance factor by examining the effect of internal monitoring mechanisms on a firm’s ES performance. We find that institutional ownership, especially pension investors, induces corporate ES performance. To address potential endogeneity concerns, this study employs the adoption of the Stewardship Code in Korea as a quasi-natural experiment, and we find consistent results. Outside directors also positively affect a firm’s ES performance, and this positive impact is more pronounced with institutional investor holding, suggesting that internal monitoring for corporate ES performance might complement each other. Furthermore, a firm’s better ES performance motivated by internal monitoring appears to bring a higher firm value. Overall, this study suggests that internal monitoring mechanisms can induce firms’ non-financial performance and eventually contribute to shareholders’ value.

Suggested Citation

  • Lee, Nam Gyoung & Han, Seung Hun & Kim, Hyeong Joon, 2024. "Internal monitoring mechanisms and corporate environmental and social performance: Evidence from Korea," Research in International Business and Finance, Elsevier, vol. 71(C).
    • Handle: RePEc:eee:riibaf:v:71:y:2024:i:c:s0275531924002071
    DOI: 10.1016/j.ribaf.2024.102414
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    More about this item

    Keywords

    ESG; Internal monitoring; Institutional ownership; Pension investors;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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