ESG, Cultural Distance and Corporate Profitability: Evidence from Chinese Multinationals
Abstract
:1. Introduction
2. Literature Review and Hypothesis Development
2.1. The Impact of ESG on Corporate Profitability
2.2. Moderating Effect of Cultural Distance
3. Data Description and Variable Selection
3.1. Sample
3.2. Variables
3.2.1. ESG
3.2.2. Corporate Profitability
3.2.3. Cultural Distance
3.2.4. Control Variables
3.3. Model Design
4. Empirical Results
4.1. Descriptive Statistics
4.2. The Impact of ESG on Corporate Profitability
4.3. The Moderating Effect of Cultural Distance
4.4. Endogeneity Test
4.5. Robustness Tests
5. Mechanism Test: Legitimacy Theory
5.1. Formatting of Mathematical Components
5.2. Test of Cultural Distance and Legitimacy
6. Conclusions and Discussion
Author Contributions
Funding
Institutional Review Board Statement
Informed Consent Statement
Data Availability Statement
Conflicts of Interest
Appendix A
Three Pillars | 14 Themes | 16 Key Indicators | 130+ Underlying Indicators |
---|---|---|---|
Environment | Internal management system | Environmental management system | 130+ underlying data indicators |
Business objectives | Low carbon plans or targets | ||
Green business plan | |||
Green products | Carbon footprint | ||
Sustainable products or services | |||
External accreditation | Product or company becomes environmentally conscientious | ||
Violations | Time of environmental violation | ||
Social | Institutional system | Quality of social responsibility reports | |
Operating activities | Goals or plans to reduce safety incidents | ||
Negative business events | |||
Trends in operating accidents | |||
Social contribution | Social responsibility-related donations | ||
Staff growth rate | |||
Poverty alleviation | |||
External accreditation | Product or company receives quality certification | ||
Governance | Institutional system | Corporate self-ESG monitoring | |
Governance structure | Connected transactions | ||
Board independence | |||
Operating activities | Tax transparency | ||
Operational risks | Asset quality | ||
Overall financial credibility | |||
Short-term debt service risk | |||
Equity pledge risk | |||
Quality of information disclosure | |||
External sanctions | Incidents of non-compliance with the law by listed companies and their subsidiaries | ||
Senior management and shareholder irregularities and breaches of the law |
Appendix B
ID1 | ID2 | |
---|---|---|
Formula | . |
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Type of Variable | Variable | Symbol | Variable Definition |
---|---|---|---|
Dependent variable | Corporate profitability | ROA | Net profit × 2/(total assets at the beginning of the period + total assets at the end of the period) × 100%. |
Independent variable | Environment, social and governance | ESG | Composed of 14 themes, 26 key indicators and 130+ underlying data indicators |
Independent variable | Environment | E | Composed of 5 themes, 7 key indicators |
Independent variable | Social | S | Composed of 4 themes, 8 key indicators |
Independent variable | Governance | G | Composed of 5 themes, 11 key indicators |
Mediator variable | Cultural distance | CD | |
Control variables | Internationalization degree | I18N | Overseas operating revenue/Total operating revenue |
Market capitalization | MC | Natural logarithm/Market capitalization | |
Leverage ratio | LEV | Total debt/Total assets | |
Capital expenditure ratio | CAPEX | Total capital expenditure/Total assets | |
Research and development intensity | R&D | Total R&D expenditure/Total assets | |
Intangible assets ratio | I.A | (Total intangible assets/Total assets)/100 | |
Foreign institutional ownership | FOR | (Foreign institutional ownership/Domestic institutional ownership)/100 | |
Corporate ownership | SOE | State-owned enterprise is 1 and private enterprise is 0 |
Variables | Obs | Mean | Std. Dev. | Min | Max |
---|---|---|---|---|---|
ROA | 3784 | 0.045 | 0.08 | −0.343 | 0.236 |
ESG | 3630 | 1.863 | 0.034 | 1.76 | 1.93 |
E | 3630 | 1.781 | 0.056 | 1.655 | 1.912 |
S | 3630 | 1.87 | 0.055 | 1.681 | 1.976 |
G | 3630 | 1.891 | 0.047 | 1.698 | 1.954 |
CD | 3785 | 1.288 | 1.461 | 0.331 | 4.465 |
I18N | 3783 | 0.173 | 0.217 | 0 | 0.899 |
MC | 3784 | 9.783 | 0.406 | 9.077 | 11.091 |
LEV | 3388 | 0.384 | 0.196 | 0.05 | 0.92 |
CAPEX | 3784 | 0.052 | 0.048 | 0.001 | 0.235 |
R&D | 3784 | 0.025 | 0.019 | 0 | 0.107 |
I.A | 3783 | 0.016 | 0.028 | 0 | 0.18 |
FOR | 3775 | 0.002 | 0.040 | 0 | 1.52 |
SOE | 3780 | 0.243 | 0.429 | 0 | 1 |
Variables | (1) | (2) | (3) | (4) |
---|---|---|---|---|
ROA | ROA | ROA | ROA | |
ESG | 0.2755 *** (0.0343) | |||
E | 0.0208 (0.0205) | |||
S | 0.0633 *** (0.0212) | |||
G | 0.2530 *** (0.0255) | |||
I18N | 0.0106 ** (0.0052) | 0.0105 ** (0.0053) | 0.0114 ** (0.0053) | 0.0086 (0.0052) |
MC | 0.0631 *** (0.0029) | 0.0668 *** (0.0029) | 0.0660 *** (0.0029) | 0.0635 *** (0.0029) |
LEV | 0.0317 (0.0265) | −0.1704 *** (0.0061) | −0.1701 *** (0.0061) | −0.1476 *** (0.0064) |
CAPEX | 0.0191 (0.0237) | 0.0483 * (0.0267) | 0.0445 * (0.0267) | 0.0230 (0.0264) |
R&D | −0.0569 (0.0641) | −0.0447 (0.0650) | −0.0575 (0.0647) | −0.0703 (0.0638) |
I.A | −0.3662 *** (0.0430) | −0.3956 *** (0.0433) | −0.3911 *** (0.0432) | −0.3646 *** (0.0427) |
FOR | −0.0049 (0.0258) | −0.0038 (0.0261) | −0.0062 (0.0260) | −0.0061 (0.0257) |
SOE | −0.0045 * (0.0027) | −0.0037 (0.0028) | −0.0033 (0.0028) | −0.0066 ** (0.0027) |
Year FE | YES | YES | YES | YES |
Region FE effects | YES | YES | YES | YES |
_cons | −1.0177 *** (0.0660) | −0.5745 *** (0.0443) | −0.6487 *** (0.0463) | −0.9894 *** (0.0533) |
N | 3229 | 3229 | 3229 | 3229 |
adj. R2 | 0.3499 | 0.3369 | 0.3386 | 0.3567 |
Variables | (1) | (2) | (3) |
---|---|---|---|
ROA | ROA | ROA | |
Small CD | Large CD | ||
ESG | 0.2164 *** (0.0464) | 0.019 ** (0.084) | 0.318 *** (0.097) |
ESG × CD | 0.0686 ** (0.0321) | ||
I18N | 0.0112 * (0.0065) | 0.006 (0.009) | −0.004 (0.014) |
MC | 0.0664 *** (0.0038) | 0.066 *** (0.006) | 0.060 *** (0.007) |
LEV | −0.1691 *** (0.0103) | −0.151 *** (0.018) | −0.217 *** (0.021) |
CAPEX | 0.0202 (0.0290) | −0.045 (0.041) | 0.035 (0.071) |
R&D | −0.2138 ** (0.1063) | −0.270 (0.173) | −0.550 *** (0.266) |
I.A | −0.3890 *** (0.0674) | −0.268 *** (0.135) | −0.418 *** (0.135) |
FOR | −0.0106 (0.0134) | 3.425 ** (1.485) | 0.011 (0.012) |
SOE | −0.0059 (0.0039) | −0.011 * (0.006) | 0.012 (0.009) |
Year FE | YES | YES | YES |
Region FE | YES | YES | YES |
_cons | −0.9344 *** (0.0894) | −0.743 *** (0.152) | −0.992 *** (0.183) |
N | 3230 | 807 | 810 |
adj. R2 | 0.3571 | 0.307 | 0.349 |
Variables | (1) | (2) | (3) | (4) |
---|---|---|---|---|
ROA | ROA | ROA | ROA | |
L.esg | 0.1845 *** (0.0402) | |||
L2.esg | 0.1256 *** (0.0485) | |||
L3.esg | 0.1136 ** (0.0577) | |||
ESG | 0.1602 *** (0.0566) | |||
DID | 0.0079 ** (0.0037) | |||
Year FE | YES | YES | YES | YES |
Region FE | YES | YES | YES | YES |
CV | YES | YES | YES | YES |
_cons | −0.8386 *** (0.0780) | −0.7316 *** (0.0946) | −0.7043 *** (0.1126) | −0.8347 *** (0.1045) |
N | 2171 | 1446 | 955 | 3230 |
adj. R2 | 0.3546 | 0.3321 | 0.3396 | 0.3561 |
Variables | (1) | (2) |
---|---|---|
ESG | ROA | |
ESG | 0.4697 *** (0.0756) | |
AVESG | 0.7036 *** (0.3164) | |
Unrecognizable test | Number of iVs = endogenous variables | |
Weak instrumental variable test | Shea’s partial R-squared = 0.0115, F Statistical quantities = 37.4259, p_val = 0.0000 | |
Exogeneity test | Robust score chi2(1) = 1.91918 (P = 0.1659) | |
Year FE | YES | YES |
Region FE | YES | YES |
CV | YES | YES |
_cons | 0.8580 (0.1411) | −1.7427 (0.5486) |
N | 3222 | 3222 |
adj. R2 | 0.1011 | 0.3017 |
Variables | (1) | (2) | (3) | (4) | (5) | (6) |
---|---|---|---|---|---|---|
ROA | ROA | ROA | ROE | ROIC | EBIT | |
2014–2019 | 2020–2021 | |||||
ESG | 0.2544 *** (0.0414) | 0.3313 *** (0.0634) | 0.5176 *** (0.0320) | 0.4894 *** (0.0658) | 0.3923 *** (0.1014) | 0.3923 *** (0.1014) |
Year FE | YES | YES | YES | YES | YES | YES |
Region FE | YES | YES | YES | YES | YES | YES |
CV | YES | YES | YES | YES | YES | YES |
_cons | −0.9969 *** (0.0799) | −0.9986 *** (0.0746) | −1.4055 *** (0.0602) | −1.8128 *** (0.1265) | −1.1332 *** (0.1948) | −1.1332 *** (0.1948) |
N | 2223 | 999 | 16,681 | 3229 | 3229 | 3229 |
adj. R2 | 0.3467 | 0.3446 | 0.0656 | 0.2324 | 0.0729 | 0.0729 |
Variables | (1) | (2) | (3) | (4) |
---|---|---|---|---|
ROA | PSR | GSR | ROA | |
PSR | 0.0403 *** (0.0079) | |||
ESG | 0.2006 ** (0.0781) | 0.1432 ** (0.0660) | ||
GSR | 0.0393 *** (0.0094) | |||
Year FE | YES | YES | YES | YES |
Region FE | YES | YES | YES | YES |
CV | YES | YES | YES | YES |
_cons | −0.5869 *** (0.0296) | 0.2049 (0.1501) | 0.1182 (0.1267) | −0.5794 *** (0.0296) |
N | 3370 | 3229 | 3229 | 3370 |
adj. R2 | 0.3572 | 0.1685 | 0.1048 | 0.3556 |
Variables | (1) | (2) | (3) | (4) | (5) | (6) | (7) | (8) |
---|---|---|---|---|---|---|---|---|
PSR | PSR | PSR | PSR | GSR | GSR | GSR | GSR | |
Developing Country | Developed Country | State-Owned Enterprise | Private Enterprise | Developing Country | Developed Country | State-Owned Enterprise | Private Enterprise | |
ESG | −0.2937 (0.2220) | 0.3077 *** (0.1098) | 0.0530 (0.1015) | 0.1878 * (0.0979) | −0.3861 (0.2370) | 0.2323 *** (0.0775) | 0.0848 (0.0670) | 0.2810 *** (0.0901) |
Year FE | YES | YES | YES | YES | YES | YES | YES | YES |
Region FE | YES | YES | YES | YES | YES | YES | YES | YES |
CV | YES | YES | YES | YES | YES | YES | YES | YES |
_cons | −0.3446 (0.6584) | 0.1873 (0.1454) | 0.1050 (0.1736) | 0.2687 (0.1925) | −0.0377 (0.5928) | −0.2116 (0.1694) | 0.0558 (0.1329) | −0.3191 (0.2175) |
N | 174 | 3059 | 760 | 2464 | 174 | 3056 | 763 | 2467 |
adj. R2 | 0.3913 | 0.1437 | 0.0531 | 0.0881 | 0.1853 | 0.0926 | 0.0470 | 0.0403 |
Variable | (1) |
---|---|
OS | |
CD | 3.2173 *** (0.0699) |
Year FE | YES |
Region FE | YES |
CV | YES |
_cons | 2.9815 (2.4939) |
N | 1552 |
Adj.R2 | 0.6145 |
Variable | (1) | (2) | (3) | (4) |
---|---|---|---|---|
OS | OS | OS | CD | |
CD | 0.6030 *** (0.0836) | 2.4619 *** (0.0711) | 2.3813 *** (0.0738) | |
ESG | −3.3497 *** (1.2626) | |||
GDP × CD | 3.7013 *** (0.0956) | |||
ID1 × CD | −2.2083 *** (0.0926) | |||
ID2 × CD | −4.7798 *** (0.2070) | |||
GD × CD | ||||
Year FE | YES | YES | YES | YES |
Region FE | YES | YES | YES | YES |
CV | YES | YES | YES | YES |
_cons | 5.4625 *** (1.7638) | 5.0347 ** (2.2978) | −1.3371 (0.8404) | 8.7581 *** (2.3891) |
N | 1510 | 1202 | 3097 | 1430 |
adj. R2 | 0.8095 | 0.9070 | 0.9068 | 0.0529 |
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Xu, X.; Liu, Z. ESG, Cultural Distance and Corporate Profitability: Evidence from Chinese Multinationals. Sustainability 2023, 15, 6771. https://doi.org/10.3390/su15086771
Xu X, Liu Z. ESG, Cultural Distance and Corporate Profitability: Evidence from Chinese Multinationals. Sustainability. 2023; 15(8):6771. https://doi.org/10.3390/su15086771
Chicago/Turabian StyleXu, Xin, and Zizhen Liu. 2023. "ESG, Cultural Distance and Corporate Profitability: Evidence from Chinese Multinationals" Sustainability 15, no. 8: 6771. https://doi.org/10.3390/su15086771