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

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.

Analysis of the Impact of ESG on Corporate Financial Performance under the Epidemic Based on Static and Dynamic Panel Data

“…While some research represents a negative connection among the performances of ESG and financial, others show a catalytic effect (i.e., a positive) or no effect. As a result, there is some disagreement over the direction in which financial successes are linked to environmental, social, and governance (ESG) outcomes [3] [4]. Environmental and social responsibility has become more important to legislators and authorities throughout the world in recent years.…”

Mapping the environmental, social and governance literature: a bibliometric and content analysis

“…There is a lack of cross-country or multi-country studies comparing the impact of ESG on firm performance in different nations. Additionally, a lot of literature is there examining the direct relationship between ESG and firm performance (Fatemi et al ., 2018; Wong et al ., 2020; Yip and Lee, 2018); future studies can be done on the different moderators and mediators to understand this relation better (Abdi et al ., 2022; Chams et al ., 2021; Ghardallou, 2022; Le, 2022; Li et al ., 2022).…”

“…Further studies can be done to check the impact of ESG performance on nonfinancial parameters such as customer performance and employee performance. There is a lack of cross-country or multi-country studies comparing the impact of ESG on firm (Fatemi et al, 2018;Wong et al, 2020;Yip and Lee, 2018); future studies can be done on the different moderators and mediators to understand this relation better (Abdi et al, 2022;Chams et al, 2021;Ghardallou, 2022;Le, 2022;Li et al, 2022).…”

ISO management system standards in the light of corporate sustainability: a bibliometric analysis

“…(2021), who state that companies must perform well in EMS certification to achieve higher ratings in the environmental pillar, Schmid et al. (2017), who conclude that ESG themes may be anchored in QMSs, and Chams et al. (2021), who state that firms with QMSs are less reliant on financial capital to improve ESG ratings.…”

“…However, this study does not make statements about specific underlying MSSs, but rather explores QMSs and EMSs in general. Other studies considering ESG ratings alongside MSs are Broadstock et al (2021), who state that companies must perform well in EMS certification to achieve higher ratings in the environmental pillar, Schmid et al (2017), who conclude that ESG themes may be anchored in QMSs, and Chams et al (2021), who state that firms with QMSs are less reliant on financial capital to improve ESG ratings. In contrast to the SDG-related studies, the conclusions of the depicted ESG-focused works are based on empirical data.…”