Reexamining Ownership Structure, ESG Engagements, and Corporate Financial Performance : The Nonlinear Relationship in Japan

DOI IR (HANDLE) Open Access

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Description

This study examines the nonlinear effects of ownership structures on environmental, social, and governance (ESG) performance in Japan and investigates the nonlinear relationship between ESG and corporate financial performance. The results suggest an inverted U-shaped relationship between foreign ownership and ESG performance and a U-shaped relationship between managerial ownership and ESG performance. However, the effect of institutional ownership on ESG is positive and linear. The results of the ESG pillars indicate that the above foreign ownership-ESG link is significant only in the social and environmental pillars, while the above managerial ownership-ESG link is significant in the social, governance, and environmental pillars. Further evidence indicates that ESG links to corporate financial performance through an inverted U-shaped pattern, and such relationships mainly result from the social pillar and governance pillar when the dependent variables are firm values (e.g., Tobin’s Q) and profitability (e.g., operating income on assets and return on equity), respectively. These findings contribute to the understanding of the relationships between ownership structures and firms’ ESG performance as well as the effects of ESG on financial performance in the Japanese capital market.

Journal

  • 大阪大学経済学

    大阪大学経済学 72 (2), 1-26, 2022-09

    The Economic Society of Osaka University and Graduate School of Economics, Osaka University

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