SUSTAINABILITY, CORPORATE GOVERNANCE, AND FIRM PERFORMANCE: EVIDENCE FROM EMERGING MARKETS

How to cite this paper: Basuony, M. A. K., Zaher, A. A., Bouaddi, M., & Noureldin, N. (2023). Sustainability, corporate governance, and firm performance: Evidence from emerging markets [Special issue]. Corporate Ownership & Control, 20 (3) , 268–276. https://doi.org/10.22495/cocv20i3siart3 Copyright © 2023 The Authors


INTRODUCTION
With a fresh perspective of sustainable development, pressure is being placed on big businesses to direct resources toward reducing climate change. greenhouse gas (GHG) emissions, particularly carbon dioxide emissions that cause global warming, have been viewed as a major environmental problem following events like the Rio Earth Summit in 1992 and the Kyoto Protocol in 1997. Because businesses are responsible for a sizable portion of GHG emissions, particularly those resulting from energy use during their production operations, it is imperative that the quantity of GHGs they produce be decreased in order to combat global warming (Bernstein et al., 2007;Bradford & Fraser, 2008). Moreover, the climate conference in Sharm el-Sheikh in Egypt (COP 27) and the United Nations Conference of the Parties (COP 26) in Glasgow have received pledges from different countries across the globe. Despite all the regulations that policymakers have undertaken, companies are encouraged to reduce GHG emissions voluntarily instead of being required mandatorily by policies, where doing this voluntarily is considered more lenient and less expensive, which is much better than direct and indirect regulations (Arimura et al., 2008;Ikkatai et al., 2008).
Researchers and environmental advocates believed that empirical evidence of a causal relationship between corporate environmental performance and corporate financial performance would persuade commercially astute managers to lessen their organizations' environmental effects. Although there have been several practical studies and a significant amount of academic research on the subject (Etzion, 2007;Ambec & Lanoie, 2008; Molina-Azori n et al., 2009), there is disagreement over whether or not -becoming green‖ is profitable. Furthermore, in the United States, the United Kingdom, Germany, and Japan, numerous studies were conducted to determine whether environmental and economic outcomes could be achieved simultaneously or not (Hart & Ahuja, 1996;Al-Tuwaijri et al., 2004;Nakao et al., 2007).
Although some studies are being done to determine the association between GHG and corporate financial performance (Busch & Hoffmann, 2011;Delmas & Nairn-Birch, 2011), earlier studies have shown contradictory findings. The results of some research highlight the potential economic advantages of businesses reducing their GHG emissions (Boiral et al., 2012). Others demonstrate that the GHG policies and measures actually put into practice typically have few direct effects (Ernst & Young, 2010;KPMG, 2008). Most of the studies have been conducted in developed countries, while there are few studies that focused on emerging countries, thus data on emerging markets would provide intriguing intuition with respect to the relationship between environmental performance and financial performance.
The lack of consensus in the literature's findings regarding how environmental performance affects financial performance in emerging countries is what makes our study interesting. The study has employed ordinary least squares regression (OLS) to determine whether there is any connection between environmental performance and the financial success of companies in emerging markets as evaluated by return on assets (ROA), Tobin's Q, and book-to-market value. Thus, this study contributes to the literature in several ways. First, conducting our tests adds to the ongoing debate on whether environmental performance impacts financial performance as proxied by both accounting and market-based measures, which would provide imperative insights to policymakers and businesses on the importance of environmental performance, and more specifically in emerging markets. Moreover, the environmental performance has been measured by testing four indices as identified: environmental, social, and governance score (ESG), environmental pillar, emissions score and carbon dioxide emissions. Furthermore, the study has incorporated corporate governance variables: board size, board age, board nationality, board education, board independence, female on board, and CEO duality. The major research question in our paper is: RQ: How does sustainability especially the environmental pillar and corporate governance mechanisms influence the financial performance in emerging markets?
The findings of the study indicate that the main index of sustainability (ESG index) and other sub-indices (environmental score, emission score and CO 2 equivalent emission) of sustainability that are used as measures of climate change have affected accounting-based performance (ROA) and market-based performance (Tobins'Q and book-tomarket value, BTMV). Also, the results show that age, nationality and education affect the firm performance; however, the female directors on the board are not affecting the firm performance.
The rest of the paper is structured as follows. In Section 2, an overview of the literature and hypotheses development have been presented. Section 3 provides a description of the data and the research methodology. Then, in Section 4, the empirical results of the study are presented. Section 5 concludes the paper.

LITERATURE REVIEW AND HYPOTHESES DEVELOPMENT
As many countries pledges in the National Climate Change Strategy 2050, this has risen their focus on five main objectives, including cutting emissions in various sectors to maintain sustainable economic growth, promoting the use of renewable energy sources, producing energy from waste, and using alternative energy forms like green hydrogen. Witnessing the research on this topic of climate change has taken various avenues when it comes to firm effects such as value relevance, information asymmetry, financial performance, and cost of capital as well as corporate governance. The need for a cleaner environment has been fostered dramatically, and various studies have been done to investigate the link between a company's environmental performance and its financial performance. While carbon disclosures do not directly influence operating companies' performance, it does impact their financial performance by improving firm transparency and reducing risk and therefore reducing information asymmetry (Lueg et al., 2019). In metanalysis research that has been done by Busch and Lewandowski (2018), which examined 32 studies, it was found a positive significant relationship between environmental and financial performance (Albertini,  performance-related events on the stock market, has found a significant correlation between positive market responses to positive occurrences and negative market responses to negative ones. Additionally, the results demonstrate that market responses to negative occurrences are stronger than those to favourable events (Endrikat, 2016).
During the last few decades, significant changes in Earth's environment have occurred. Burning of fossil fuels releases harmful pollutants that have a negative impact on the air, water, and soil such as global warming, acid rain, deforestation and ozone depletion. Some wastes have a negative effect on water's purity and validity in addition to several acts that are not for the sake of Earth's health. The main contributor to these effects is firms that do not act in favour of the environment. Firms do not put into consideration plans to control pollution and save the Earth (Bernstein, 2007). Furthermore, each environmental problem has its own features, such as the length of time it has existed, the severity of the problem, the restrictions that have been implemented, and the extent of pollution. As a result, each stakeholder has a unique perspective on each environmental issue. To put it another way, certain stakeholders may regard global warming as one of the most pressing issues, while others believe the waste problem is the most harmful. As a result, there are more arguments about how to rank and deal with environmental issues (Iwata & Okada, 2011).
Shareholder theory sees ESG as an intrinsic intangible powerful asset that can hinder management self-serving behaviour and pushes further for self-discipline (Gao et al., 2014). From the four perspectives demonstrated by Garriga (2004) besides social responsibility, other theories such as ethical theories, political theories, integrative theories, and instrumental theories should be considered. Ethical theories view ESG as an ethical obligation that a firm will pursue to contribute morally to society, which fosters responsibility within the firm that will result in a high level of transparency (Gelb & Strawser, 2001;Hoi et al., 2013;Bereskin et al., 2020). Under the ethical theory, governance is strengthening within the firm by starting with its employees (Kim, 2014), and managing quality disclosures to enhance stakeholder value (Kim, Webster et al., 2012).
Most of the research has focused on overall environmental performance, but only a few have looked at GHG emissions. The literature had documented a positive relationship between social performance measure and financial performance . Companies that disclose carbon emission performance to reduce their risk profile may reflect positive financial performance (Matsumura et al., 2013). Companies that tend to please their customers when it comes to carbon emission footprint verge to impact their revenue line higher and manage to sustain better than those who do not (Lemma et  As the government's main objective is to promote a firm's long-term growth, while implementing policies and controls that will discourage managers from self-serve, one of the core objectives of corporate governance is to establish a good relationship between the firm's and society's goals (Thomsen & Conyon, 2012). Corporate governance is a notion that businesses use to improve their performance and ensure their long-term viability. Corporate governance establishes the framework for all stakeholders' relationships by establishing laws and rules.
Some studies had reflected on multiple directorship executive characteristics but found limited results regarding age, education and multiple directorships of top executives (Haque, 2017). Based on Echelon's theory, such chief executive officer (CEO) characteristics as education, tenure, and salary can influence how the CEO's governing characteristics would impact carbon performance (Hambrick & Mason, 1984). Moreover, CEO tenure as well as his or her education was seen as positively impacting carbon emission disclosure (Ma et al., 2019; Lewis et al., 2014). Firms that have a CEO that reports on climate emission performance tend to be less likely to engage in corporate manipulation as they self-regulate. Firms that do such disclosure are less likely to engage in tax avoidance (Hoi et al., 2013) and less likely to be involved with insider trading schemes as the agency problem is reduced (Gao et  (2019) stated that board independence, sustainability committee and foreign board diversity had a positive impact on carbon disclosure. Having a strong external corporate governance structure can have a strengthening effect that can reduce the incidence of corporate fraudulent meaning that it will implement anti-corruption measures in place (Zhang, 2018). Hence, the following hypotheses were derived as follows.
H1: Corporate sustainability has a significant association with accounting and market-basedperformance.
H2: There is a significant association between the female on board and the firm financial performance.
H3: There is a significant association between the board's age and firm financial performance.
H4: There is a significant association between the board's education and firm financial performance.
H5: There is a significant association between the nationality of the board and the firm financial performance.

Sample and data collection
The sample of this study comprises 1382 firms with a total of 19199 firm-year observations covering a period from 2008 to 2021. These firms are listed in the MSCI emerging markets index representing 24 emerging countries. The data was collected from different databases. The corporate governance data was gathered from the BoardEx database. Moreover, the sustainability, firm-specific characteristics and firm performance are collected from the Datastream database. Table 1 shows the dependent variables, which consist of accounting-based performance (ROA) and market-based performance (Tobin's Q and BTMV), whereas the independent variables consist of sustainability indices (ESG, environmental, emission, and CO 2 equivalent emission); corporate governance as represented by the board age, board education of executive and non-executive, board executive and non-executive nationality, board size, female executive directors, female non-executive directors, board independence and CEO duality. Besides, including firm characteristics variables such as firm size and leverage

Model specification
The estimated equations are: (1) where, Y is the ROA, Tobins' Q and BTMV for all the previous equations. Table 2 shows the descriptive statistics of mean, median, maximum and minimum and standard deviation for sustainability as dependent variables (CO 2 emission score, environmental score, and ESG score) and for the corporate governance and firm characteristics as independent variables.

Analysis and discussion
The results of the CO 2 emission as the first independent variable are shown in whereas it has a significant negative association with Tobin's Q at a significance level of 1%; while it has a significant positive effect on BTMV. Furthermore, with regard to the association between the average age of non-executive directors of the board, it has been illustrated that there is a significant positive relationship between ROA and Tobin's Q at a significance level of 1%; however, there is a significant negative association with BTMV at a significance level of 1%. As for the gender diversity relationships, the executive females on board have an insignificant relationship with financial performance. The same for the non-executive females on board in relationship with ROA and BTMV, whereas, it is a significant positive association with Tobin's Q at a 10% confidence level. With regards to the education of executives and non-executives on the board, the analysis has shown that the average education for executive directors has an insignificant impact on both ROA and BTMV, but it has a significant negative association with Tobin's Q. The average education of non-executive directors has a significant positive association with ROA at 1% significance level and significant negative relationship with BTMV at 5% significance level; however, such relationship is insignificant with Tobin's Q. The results of studies by Fernánaez-Temprano and Tejerina-Gaite (2020), and Boadi and Osarfo (2019) suggest a negative effect of education on firm performance. As for the nationality mix of executives and non-executives on board in relationship with the financial performance, the nationality mix of executive directors on board has a significant positive relationship with ROA at a significance level of 1%, and Tobin's Q at a significance level 10%, but it has a significant negative association with BTMV at a significance level of 1%. As for the nationality mix of the non-executives on the board, the relationship is insignificant with ROA and Tobin's Q, whereas the relationship is positively significant with BTMV at a significance level of 10%.   Table 4 displays the findings of emission score as the second independent variable. It has been established that, at a significance level of 1%, there is a positive significant correlation between emission score and financial performance. Additionally, the average age of the board's executive directors has an insignificant impact on ROA, but a significant negative link with Tobin's Q at a significance level of 1%, and a significant positive impact on BTMV at a significance level of 1%. Furthermore, it has been demonstrated that there is a significant positive relationship between ROA and Tobin's Q and the average age of non-executive directors of the board at a significance level of 1%, but that there is a significant negative relationship with BTMV at a significance level of 1%. In terms of gender diversity relationships, the number of female executives has an insignificant bearing on financial success. The same is true for the non-executive female board members in relation to ROA, Tobin's Q and BTMV. Average non-executive director education has an insignificant link with ROA, but a significant negative association with Tobin's Q at a 1% significance level and a significant negative relationship with BTMV at a 5% significance level. The nationality mix of executive directors on the board has a significant negative relationship with ROA, Tobin's Q and BTMV at a significance level of 1%. The nationality mix of the non-executives on the board has an insignificant association with ROA or Tobin's Q, but it does have a significant positive relationship with BTMV at a significance level of 5%. The results supporting the environmental score as the third independent variable are shown in Table 5. It has been determined that there is a positive significant relationship between environmental pillar score and financial performance at a significance level of 1%. The average age of the executive directors of the board has an insignificant effect on ROA, but a significant negative relationship with Tobin's Q at a significance level of 1%, and a significant positive relationship with BTMV at a significance level of 1%. Additionally, it has been shown that there is a significant negative association with BTMV at a significance level of 1%, but a significant positive relationship with ROA, Tobin's Q, and the average age of non-executive directors of the board. In terms of the associations between gender diversity and financial performance, the proportion of female executives and nonexecutives is insignificant to both the accounting and market-based financial performance measures.
Average executive director education level shows an insignificant relationship with ROA, but it does have a significant inverse relationship with Tobin's Q and BTMV at the 1% level of significance. As for the average non-executives education level, a significant positive relationship is revealed with ROA and Tobin's Q at a 1% significance level, whereas a significant negative impact on BTMV at a 5% significance level. At a significance level of 10%, the nationality composition of the executive directors on the board significantly positively affects ROA; however, shows insignificant impact on both market-based financial measures. The non-executive board members' mix of nationalities has no significant correlation with ROA or Tobin's Q, but at a significant positive correlation with BTMV at a 5% significance level.  Table 6 displays the findings of the ESG as the fourth independent variable. It has been found that there is a significant positive association between the ESG score and both financial performance measures; as ESG is positively significant with ROA and Tobin's Q at a 1% significance level and with BTMV at a significance level of 10%. Although it has an insignificant impact on ROA, the average age of the board's executive directors has a significant negative association with Tobin's Q at a significance threshold of 1% and a significant positive association with BTMV at the same level.
Additionally, it has been demonstrated that, at a significance level of 1%, there is a significant negative link with BTMV, but a significant positive relationship with ROA, and Tobin's Q at 5% and 1% significance levels respectively. The number of female executives and non-executives has insignificant relationships on both the accounting-and market-based financial performance indicators, which confirms previous studies according to Amrani  The average executive director's education level has an insignificant relationship with ROA, but it does, at the 1% level of significance, have a significant inverse relationship with Tobin's Q and BTMV. Regarding the average non-executive education level, at a 1% level of significance, a significant positive association between ROA and Tobin's Q is found, whereas, at a 5% level of significance, a significant negative relationship is found between BTMV and ROA. The nationality mix of executive directors on the board has a significant positive relationship with ROA at a significance level of 1% and Tobin's Q at a significance level of 5%, but it has an insignificant association with BTMV. The nationality mix of the board's non-executives has a significant negative association with ROA and Tobin's Q at 10% and 5% significance level, respectively, but it does have a positive relationship with BTMV at a significance level of 5%.

CONCLUSION
It has been shown that all measures of sustainability with its main ESG score, together with other sub-measures such as carbon dioxide, emission score and environmental score pillar are significantly positively associated with market-based and accounting-based measures. Moreover, the female executives and non-executives on board have revealed insignificant relationships with both financial performance measures. Furthermore, the average age of executives on board has an insignificant relationship with ROA. While, the average non-executives on board are significant to both the market-based and accounting-based measures. The average executive education level has an insignificant association with all financial performance measures; however, the average non-executive education level is significant with all financial performance measures. Board size has an insignificant effect on ROA; whereas CEO duality carries an insignificant relationship with ROA, Tobin's Q and BTMV. Additionally, board independence has a significant association with ROA and BTMV financial performance measures. This paper has some limitations where the sample of the study includes only emerging companies rather than developed ones. Furthermore, this study focuses on the environmental pillars and their sub-indices ignoring the social and governance pillars. Future studies could be done by doing comparative studies between the developed and developing countries where the results can add to the knowledge in the area of sustainability.