IDEAS home Printed from https://ideas.repec.org/a/jfr/ijfr11/v10y2019i3p11-30.html
   My bibliography  Save this article

Board Capabilities and the Mediating Roles of Absorptive Capacity on Environmental Social and Governance (ESG) Practices

Author

Listed:
  • Aida Maria Ismail
  • Zuria Hajar Mohd Adnan
  • Fadzlina Mohd Fahmi
  • Faizah Darus
  • Colin Clark

Abstract

Public listed companies in Malaysia have been pressured tremendously to accept the engagement of Environment, Social and Governance (ESG), but the engagement is still low based on previous studies. ESG will enhance company financial performance, image as well as the ability to attract and retain the workplace which contributes to the market value in the economy. This shows that ESG engagement improve company brand image and reputation, increase customer loyalty and sales as well as productivity. Corporate governance is seen to be the key role to ensure that companies engage with ESG practices since it can enhance the value creation and improve financial performance. Even the present investors are bound to look for non-financial performance elements like corporate governance and environmental, social and governance (ESG) practices that the company engaged since it is an evidence of effective corporate governance. Based on today¡¯s global and innovation-driven economy which also include social and environmental matters consisting of welfare distribution and growth, it is said that countries need to be more efficient in finding new ways to enhance the environmental policy promoting greater change and dynamics. Thus, they must find new ways to develop an innovation policy to emphasise the knowledge-driven economy on the capacity to adapt and adopt best practices, create, diffuse and transform innovation and knowledge. The absorptive capacity will recognise the ability of the individual and company in adopting the innovation which play an essential part in determining the characteristics of good corporate governance to ensure best ESG practices in the company. This paper examines the relationship between board capabilities and ESG practices through the mediating role of absorptive capacity. Board size, board diversity and board independent are the board capabilities that the paper investigates. Collection of information and data was from company's listed in FTSE4Good Bursa Malaysia from the year 2012 to 2016. The results from the regression analysis show that ESG practices have a significant relationship with board size, board diversity, board independence and absorptive capacity. On top of that, absorptive capacity is perceived to have influence on board diversity and board independence towards ESG practices. The results provide empirical evidence and guidance in identifying areas of problems in the current policy and amend it for a better policy in promoting sustainability.

Suggested Citation

  • Aida Maria Ismail & Zuria Hajar Mohd Adnan & Fadzlina Mohd Fahmi & Faizah Darus & Colin Clark, 2019. "Board Capabilities and the Mediating Roles of Absorptive Capacity on Environmental Social and Governance (ESG) Practices," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 10(3), pages 11-30, May.
    • Handle: RePEc:jfr:ijfr11:v:10:y:2019:i:3:p:11-30
    DOI: 10.5430/ijfr.v10n3p11
    as

    Download full text from publisher

    File URL: http://www.sciedu.ca/journal/index.php/ijfr/article/view/15505/9613
    Download Restriction: no
    File URL: http://www.sciedu.ca/journal/index.php/ijfr/article/view/15505
    Download Restriction: no
    File URL: https://libkey.io/10.5430/ijfr.v10n3p11?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Emmanuel O. Okon & Shaibu H. Richard, 2017. "Gender and Transport Sector Employment: Evidence from Kogi State, Nigeria," American Journal of Education and Learning, Pacharapa Naka, vol. 2(1), pages 1-13.
    2. Eng, L. L. & Mak, Y. T., 2003. "Corporate governance and voluntary disclosure," Journal of Accounting and Public Policy, Elsevier, vol. 22(4), pages 325-345.
    3. Michael C. Jensen, 2010. "The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems," Journal of Applied Corporate Finance, Morgan Stanley, vol. 22(1), pages 43-58, January.
    4. Patrick Ene Okon, 2018. "Comparative Analysis of Mass Media Coverage of the Fight Against Corruption in Nigeria by the Obasanjo and Buhari Administrations," International Journal of Emerging Trends in Social Sciences, Scientific Publishing Institute, vol. 4(2), pages 47-57.
    5. Sami, Heibatollah & Wang, Justin & Zhou, Haiyan, 2011. "Corporate governance and operating performance of Chinese listed firms," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 20(2), pages 106-114.
    6. Patrick Ene Okon, 2017. "Name as a Vehicle of Communication: A Case of the Efiks of Nigerias Cross River State," International Journal of English Language and Literature Studies, Asian Economic and Social Society, vol. 6(2), pages 33-41, June.
    7. Olatomide W Olowa, 2018. "Determinants of Rural Residential Solid Waste Collection Services in Lagos State," International Journal of Sustainable Development & World Policy, Conscientia Beam, vol. 7(1), pages 1-7.
    8. Haque, Faizul, 2017. "The effects of board characteristics and sustainable compensation policy on carbon performance of UK firms," The British Accounting Review, Elsevier, vol. 49(3), pages 347-364.
    9. Yermack, David, 1996. "Higher market valuation of companies with a small board of directors," Journal of Financial Economics, Elsevier, vol. 40(2), pages 185-211, February.
    10. Patrick Ene Okon, 2017. "Name as a Vehicle of Communication: A Case of the Efiks of Nigerias Cross River State," International Journal of English Language and Literature Studies, Asian Economic and Social Society, vol. 6(2), pages 33-41.
    11. Paul Guest, 2009. "The impact of board size on firm performance: evidence from the UK," The European Journal of Finance, Taylor & Francis Journals, vol. 15(4), pages 385-404.
    12. Nick A. Obodo & Davidson Oliver Anigbata, 2018. "Challenges of Implementing Electronic Governance in Public Sector Organizations in Nigeria," International Journal of Applied Economics, Finance and Accounting, Online Academic Press, vol. 2(1), pages 30-35.
    13. Doris M. Merkl-Davies & Niamh Brennan, 2007. "Discretionary disclosure strategies in corporate narratives : incremental information or impression management?," Open Access publications 10197/2907, Research Repository, University College Dublin.
    14. Olatomide.W. Olowa, 2018. "Determinants of Rural Residential Solid Waste Collection Services in Lagos State," International Journal of Sustainable Agricultural Research, Conscientia Beam, vol. 7(1), pages 1-7.
    15. Tian, Gloria Y. & Twite, Garry, 2011. "Corporate governance, external market discipline and firm productivity," Journal of Corporate Finance, Elsevier, vol. 17(3), pages 403-417, June.
    16. Robert G. Eccles & George Serafeim & Michael P. Krzus, 2011. "Market Interest in Nonfinancial Information," Journal of Applied Corporate Finance, Morgan Stanley, vol. 23(4), pages 113-127, December.
    17. Robert G. Eccles & Michael P. Krzus & George Serafeim, 2011. "Market Interest in Nonfinancial Information," Harvard Business School Working Papers 12-018, Harvard Business School.
    18. Giovanna Michelon & Antonio Parbonetti, 2012. "The effect of corporate governance on sustainability disclosure," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 16(3), pages 477-509, August.
    19. James J. Cordeiro & Joseph Sarkis, 2008. "Does explicit contracting effectively link CEO compensation to environmental performance?," Business Strategy and the Environment, Wiley Blackwell, vol. 17(5), pages 304-317, July.
    20. Nick A. Obodo, 2018. "Content Analysis of Time Management as a Tool for Corporate Effectiveness," International Journal of Applied Economics, Finance and Accounting, Online Academic Press, vol. 2(2), pages 36-39.
    21. Nick A. Obodo, 2018. "Content Analysis of Time Management as a Tool for Corporate Effectiveness," International Journal of Applied Economics, Finance and Accounting, Online Academic Press, vol. 2(2), pages 36-39.
    22. Alexander Bassen & Ana Maria Kovács, 2008. "Environmental, Social and Governance Key Performance - Indicators from a Capital Market Perspective," Zeitschrift für Wirtschafts- und Unternehmensethik - Journal for Business, Economics & Ethics, Nomos Verlagsgesellschaft mbH & Co. KG, vol. 9(2), pages 182-192.
    23. Niamh Brennan & Doris M. Merkl-Davies, 2013. "Accounting Narratives and Impression Management," Open Access publications 10197/4949, Research Repository, University College Dublin.
    24. Stephen Bear & Noushi Rahman & Corinne Post, 2010. "The Impact of Board Diversity and Gender Composition on Corporate Social Responsibility and Firm Reputation," Journal of Business Ethics, Springer, vol. 97(2), pages 207-221, December.
    25. Siti Nuryanah & Sardar M. N. Islam, 2015. "Corporate Governance and Financial Management," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-137-43561-3.
    26. Anil Shivdasani & Marc Zenner, 2004. "Best Practices in Corporate Governance: What Two Decades of Research Reveals," Journal of Applied Corporate Finance, Morgan Stanley, vol. 16(2‐3), pages 29-41, March.
    27. Hong, Harrison & Kacperczyk, Marcin, 2009. "The price of sin: The effects of social norms on markets," Journal of Financial Economics, Elsevier, vol. 93(1), pages 15-36, July.
    28. Roshima Said & Yuserrie Hj Zainuddin & Hasnah Haron, 2009. "The relationship between corporate social responsibility disclosure and corporate governance characteristics in Malaysian public listed companies," Social Responsibility Journal, Emerald Group Publishing Limited, vol. 5(2), pages 212-226, June.
    29. Liao, Lin & Luo, Le & Tang, Qingliang, 2015. "Gender diversity, board independence, environmental committee and greenhouse gas disclosure," The British Accounting Review, Elsevier, vol. 47(4), pages 409-424.
    30. Emmanuel O. Okon & Shaibu H. Richard, 2017. "Gender and Transport Sector Employment: Evidence from Kogi State, Nigeria," American Journal of Education and Learning, Online Science Publishing, vol. 2(1), pages 1-13.
    31. Jordi Surroca & Josep A. Tribó & Sandra Waddock, 2010. "Corporate responsibility and financial performance: the role of intangible resources," Strategic Management Journal, Wiley Blackwell, vol. 31(5), pages 463-490, May.
    32. Christine A. Mallin & Giovanna Michelon, 2011. "Board reputation attributes and corporate social performance: an empirical investigation of the US Best Corporate Citizens," Accounting and Business Research, Taylor & Francis Journals, vol. 41(2), pages 119-144, June.
    33. Nick A. Obodo & Davidson Oliver Anigbata, 2018. "Challenges of Implementing Electronic Governance in Public Sector Organizations in Nigeria," International Journal of Applied Economics, Finance and Accounting, Online Academic Press, vol. 2(1), pages 30-35.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Iman Harymawan & Fajar Kristanto Gautama Putra & Bayu Arie Fianto & Wan Adibah Wan Ismail, 2021. "Financially Distressed Firms: Environmental, Social, and Governance Reporting in Indonesia," Sustainability, MDPI, vol. 13(18), pages 1-18, September.
    2. Salvatore Esposito De Falco & Raffaella Montera & Sabrina Leo & Francesco Laviola & Pietro Vito & Domenico Sardanelli & Gianpaolo Basile & Giulia Nevi & Raffaele Alaia, 2024. "Trends and patterns in ESG research: A bibliometric odyssey and research agenda," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(5), pages 3703-3723, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Nicola Cucari & Salvatore Esposito De Falco & Beatrice Orlando, 2018. "Diversity of Board of Directors and Environmental Social Governance: Evidence from Italian Listed Companies," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 25(3), pages 250-266, May.
    2. María Consuelo Pucheta‐Martínez & Isabel Gallego‐Álvarez, 2019. "An international approach of the relationship between board attributes and the disclosure of corporate social responsibility issues," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 26(3), pages 612-627, May.
    3. Giuliana Birindelli & Stefano Dell’Atti & Antonia Patrizia Iannuzzi & Marco Savioli, 2018. "Composition and Activity of the Board of Directors: Impact on ESG Performance in the Banking System," Sustainability, MDPI, vol. 10(12), pages 1-20, December.
    4. Jaime Guerrero-Villegas & Leticia Pérez-Calero & José Manuel Hurtado-González & Pilar Giráldez-Puig, 2018. "Board Attributes and Corporate Social Responsibility Disclosure: A Meta-Analysis," Sustainability, MDPI, vol. 10(12), pages 1-22, December.
    5. Le Luo & Qingliang Tang, 2021. "Corporate governance and carbon performance: role of carbon strategy and awareness of climate risk," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(2), pages 2891-2934, June.
    6. Haque, Faizul, 2017. "The effects of board characteristics and sustainable compensation policy on carbon performance of UK firms," The British Accounting Review, Elsevier, vol. 49(3), pages 347-364.
    7. Haque, Faizul & Jones, Michael John, 2020. "European firms’ corporate biodiversity disclosures and board gender diversity from 2002 to 2016," The British Accounting Review, Elsevier, vol. 52(2).
    8. Thi H.H. Nguyen & Mohamed H. Elmagrhi & Collins G. Ntim & Yue Wu, 2021. "Environmental performance, sustainability, governance and financial performance: Evidence from heavily polluting industries in China," Business Strategy and the Environment, Wiley Blackwell, vol. 30(5), pages 2313-2331, July.
    9. Rupjyoti Saha & K. C. Kabra, 2020. "Corporate Governance and Voluntary Disclosure: A Synthesis of Empirical Studies," Business Perspectives and Research, , vol. 8(2), pages 117-138, July.
    10. Tantawy Moussa & Amir Allam & Said Elbanna & Ahmed Bani‐Mustafa, 2020. "Can board environmental orientation improve U.S. firms' carbon performance? The mediating role of carbon strategy," Business Strategy and the Environment, Wiley Blackwell, vol. 29(1), pages 72-86, January.
    11. Nurshahirah Abd Majid & Amar Hisham Jaaffar, 2023. "The Effect of Women’s Leadership on Carbon Disclosure by the Top 100 Global Energy Leaders," Sustainability, MDPI, vol. 15(11), pages 1-26, May.
    12. Adelaide Martins & Delfina Gomes & Manuel Castelo Branco, 2020. "Managing Corporate Social and Environmental Disclosure: An Accountability vs. Impression Management Framework," Sustainability, MDPI, vol. 13(1), pages 1-15, December.
    13. Francesco Campanella & Luana Serino & Anna Crisci & Antonello D'Ambra, 2021. "The role of corporate governance in environmental policy disclosure and sustainable development. Generalized estimating equations in longitudinal count data analysis," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 28(1), pages 474-484, January.
    14. Lucrezia Songini & Anna Pistoni & Patrizia Tettamanzi & Fabrizio Fratini & Valentina Minutiello, 2022. "Integrated reporting quality and BoD characteristics: an empirical analysis," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 26(2), pages 579-620, June.
    15. Grigoris Giannarakis & Andreas Andronikidis & Nikolaos Sariannidis, 2020. "Determinants of environmental disclosure: investigating new and conventional corporate governance characteristics," Annals of Operations Research, Springer, vol. 294(1), pages 87-105, November.
    16. Renata Konadu & Gabriel Sam Ahinful & Samuel Owusu-Agyei, 2021. "Corporate governance pillars and business sustainability: does stakeholder engagement matter?," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 18(3), pages 269-289, September.
    17. Nurshahirah Abd Majid & Amar Hisham Jaaffar & Raed Hussam Mansour Alzoubi, 2023. "The Impact of Women’s Role in Corporate Governance on Carbon Disclosure Performance: A Descriptive Study of Top 100 Global Energy Leaders," International Journal of Energy Economics and Policy, Econjournals, vol. 13(6), pages 404-417, November.
    18. Eugenio Zubeltzu‐Jaka & Igor Álvarez‐Etxeberria & Eduardo Ortas, 2020. "The effect of the size of the board of directors on corporate social performance: A meta‐analytic approach," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 27(3), pages 1361-1374, May.
    19. Akbas Halil Emre, 2016. "The Relationship Between Board Characteristics and Environmental Disclosure: Evidence from Turkish Listed Companies," South East European Journal of Economics and Business, Sciendo, vol. 11(2), pages 7-19, December.
    20. Ayman Issa & Mohammad A. A. Zaid & Jalal Rajeh Hanaysha, 2022. "Exploring the relationship between female director's profile and sustainability performance: Evidence from the Middle East," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(6), pages 1980-2002, September.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:jfr:ijfr11:v:10:y:2019:i:3:p:11-30. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Gina Perry (email available below). General contact details of provider: http://ijfr.sciedupress.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.