What question did this study set out to answer?

This research aims to explore how the quality of governance in countries influences corporate sustainability efforts and ethical behavior, particularly focusing on ESG outcomes.

May 14, 2026European Financial Management0 citationsOpen Access

The Effects of Country Governance Quality on Corporate Sustainability and Ethical Behaviour

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PFPaulo Francisco

Key Points

This research aims to explore how the quality of governance in countries influences corporate sustainability efforts and ethical behavior, particularly focusing on ESG outcomes.
Utilized Refinitiv/LSEG data for approximately 146,000 firm-years from 86 countries (2002–2023).
Employed Mundlak within/between decomposition to analyze the relationship between governance and ESG performance/controversies.
Conducted Instrumental Variable and Difference in Differences (DiD) tests to validate findings.
Found that better governance correlates with higher overall ESG performance, particularly across environmental, social, and governance dimensions.
Identified that improved governance leads to more reported controversies, indicating better detection rather than poorer conduct.
Results supported by both Instrumental Variable and DiD analyses.

Abstract

ABSTRACT Using institutional theory, we examine how country governance affects two ESG outcomes: ESG performance and ESG controversies. With Refinitiv/LSEG data for ~146,000 firm‐years in 86 countries (2002–2023) and World Bank WGI, we apply a Mundlak within/between decomposition to test complementarity versus substitution (performance) and prevention versus detection (controversies). Better governance is strongly associated with higher ESG performance—overall and across E, S and G—especially cross‐country. Yet governance also predicts more reported controversies, consistent with detection/visibility rather than worse conduct. Instrumental Variable and DiD tests corroborate these results.

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Paulo Francisco (2026) studied this question.

synapsesocial.com/papers/6a05680ea550a87e60a206d9 https://doi.org/10.1111/eufm.70077

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May 14, 2026European Financial Management0 citationsOpen Access

The Effects of Country Governance Quality on Corporate Sustainability and Ethical Behaviour

View Full Paper

PFPaulo Francisco

Key Points

This research aims to explore how the quality of governance in countries influences corporate sustainability efforts and ethical behavior, particularly focusing on ESG outcomes.
Utilized Refinitiv/LSEG data for approximately 146,000 firm-years from 86 countries (2002–2023).
Employed Mundlak within/between decomposition to analyze the relationship between governance and ESG performance/controversies.
Conducted Instrumental Variable and Difference in Differences (DiD) tests to validate findings.
Found that better governance correlates with higher overall ESG performance, particularly across environmental, social, and governance dimensions.
Identified that improved governance leads to more reported controversies, indicating better detection rather than poorer conduct.
Results supported by both Instrumental Variable and DiD analyses.

Abstract

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View Full Paper

Cite This Study

Paulo Francisco (2026) studied this question.

synapsesocial.com/papers/6a05680ea550a87e60a206d9 https://doi.org/10.1111/eufm.70077

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View Full Paper