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Environmental, Social and Governance (ESG) Scores and Financial Performance of Multilatinas: Moderating Effects of Geographic International Diversification and Financial Slack

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Abstract

This paper examines whether a firm’s financial performance (FP) is associated with superior environmental, social and governance (ESG) scores in emerging markets of multinationals in Latin America. The study addresses the current research gap on this issue; it develops hypotheses and tests them by applying linear regressions with a data panel drawn from the Thomson Reuters Eikon™ database to analyse data on 104 multinationals from Brazil, Chile, Colombia, Mexico and Peru between 2011 and 2015. The results suggest that the relationship between the ESG score and FP is significantly statistically negative. Furthermore, in examining environmental, social and governance separately to accurately determine each variable’s relationship to multilatinas’ FP, the results reveal a negative relationship. Finally, the empirical analysis provides evidence for a moderating effect of financial slack and geographic international diversification on the relationship between ESG dimensions and firms’ FP. This study furthers understanding of the relationship between ESG dimensions and FP for the Latin American business context.

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Acknowledgements

This research has been funded by the Spanish Ministry of Education and Science (Research Projects ECO2013-47009-P; ECO2014-58799-R and ECO2016-75909-P), the Regional Government of Andalusia (Excellence Research Project P11-SEJ-7988), and the Business and Economics School of the University of Granada. The authors thank members of ISDE research group (SEJ-481, University of Granada) for their insightful recommendations and suggestions to improve this paper.

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  1. Faculty of Business and Marketing Studies, Institución Universitaria Esumer, Medellín, Colombia

    Eduardo Duque-Grisales

  2. Management Department II, University of Granada, Campus de la Cartuja, S.N., 18071, Granada, Spain

    Javier Aguilera-Caracuel

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  1. Eduardo Duque-Grisales
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  2. Javier Aguilera-Caracuel
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Correspondence to Eduardo Duque-Grisales.

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Eduardo Duque-Grisales and Javier Aguilera-Caracuel declare that they have no conflict of interest.

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Duque-Grisales, E., Aguilera-Caracuel, J. Environmental, Social and Governance (ESG) Scores and Financial Performance of Multilatinas: Moderating Effects of Geographic International Diversification and Financial Slack. J Bus Ethics 168, 315–334 (2021). https://doi.org/10.1007/s10551-019-04177-w

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