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Role Reversal! Financial Performance as an Antecedent of ESG: The Moderating Effect of Total Quality Management

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  • Nour Chams

    (Center for Agro-Food Economics and Development (CREDA), University Polytechnic of Catalonia, 08860 Barcelona, Spain)

  • Josep García-Blandón

    (IQS School of Management, Department of Economics and Finance, Ramon Llull University, 08017 Barcelona, Spain)

  • Khaled Hassan

    (ESADE Business School, Department of Operations and Innovation, Ramon Llull University, 08712 Barcelona, Spain)

Abstract

Shifting from short-term profit maximizing strategies to more sustainable long-term ones, the corporate world has been exerting extra effort to adopt environmental, social, and governance (ESG) performances. However, the loop question remains unsolved: is ESG financially-driven or is financial performance (FIN) ESG-driven? Building on the slack resources theory and bridging three management literatures, this analysis relies on a six-year panel dataset of multinational organizations from different industries. A distributed lag regression model is proposed to empirically investigate the impact of FIN performance on ESG and to test the moderator effect of total quality management (TQM). The findings reveal a stimulus effect between free cash flow (FCF) and ESG scores. While the interaction between TQM and FCF has a negative effect on ESG, the interaction between TQM and Tobin’s Q reveals a positive relationship with ESG. This study sheds further insights for both research and practice towards the operationalization of sustainability management.

Suggested Citation

  • Nour Chams & Josep García-Blandón & Khaled Hassan, 2021. "Role Reversal! Financial Performance as an Antecedent of ESG: The Moderating Effect of Total Quality Management," Sustainability, MDPI, vol. 13(13), pages 1-18, June.
    • Handle: RePEc:gam:jsusta:v:13:y:2021:i:13:p:7026-:d:580280
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