The Impact of Environmental, Social, and Governance (ESG) Factors on Corporate Governance Practices and Their Effects on Financial Performance and Financial Reporting Quality

Adigwe Pretty Dennis PhD; Doute Alfred Ambrose

doi:10.51699/cajitmf.v7i2.1234

Authors

Adigwe Pretty Dennis PhD Department of Accounting, Niger Delta University, Wilberforce Island, Bayelsa state
Doute Alfred Ambrose Department of Accounting, Niger Delta University, Wilberforce Island, Bayelsa state

DOI:

https://doi.org/10.51699/cajitmf.v7i2.1234

Keywords:

ESG, corporate governance, financial performance, financial reporting quality, sustainability reporting

Abstract

More people around the world are focusing on sustainability and responsible business actions, which has led to a higher need for clear and trustworthy information from companies. In recent years, Environmental, Social, and Governance (ESG) practices have become important ways to measure how sustainable a company is, how ethical its actions are, and how well it will perform in the long run. Despite the increasing significance of ESG considerations, empirical evidence on how ESG practices interact with corporate governance mechanisms to affect financial performance and financial reporting quality remains limited, especially in emerging economies. This study examines the influence of ESG factors and corporate governance practices on financial performance and financial reporting quality among publicly listed firms. Specifically, the study investigates how ESG characteristics affect corporate governance structures and how governance mechanisms subsequently influence corporate outcomes. The study adopts a quantitative research design using panel data obtained from 50 selected listed companies over a specified study period. Secondary data were collected from annual reports, sustainability reports, ESG databases, and stock exchange publications. ESG indicators were analysed alongside corporate governance variables such as board independence, ownership structure, and audit committee effectiveness. Financial performance was measured using Return on Assets (ROA), Return on Equity (ROE), and Tobin’s Q, while financial reporting quality was assessed using measures of earnings management and discretionary accruals. The data was analyzed using panel regression, descriptive statistics, and correlation analysis; further robustness checks were carried out to guarantee the accuracy of the findings. The results show a strong positive correlation between corporate governance quality and ESG activities. Strong governance practices have also been shown to boost financial performance and raise the caliber of financial reporting. These results emphasize how crucial it is to incorporate ESG factors into corporate governance frameworks in order to improve accountability, transparency, and long-term business performance

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