Too Much of a Good Thing? Two-Sided Effect of ESG on Corporate Financial Performance

Xiaodong Teng; Shouhai Wang; Huiping Liu; Wengang  Sun; Desheng Zhu; Kun-Shan Wu

doi:10.5755/j01.ee.35.4.33729

Authors

Xiaodong Teng School of Accountancy, Shandong University of Finance and Economics, China
Shouhai Wang School of Accountancy, Shandong University of Finance and Economics, China
Huiping Liu School of Accountancy, Shandong University of Finance and Economics, China
Wengang Sun MBA College, Shandong University of Finance and Economics, China
Desheng Zhu MPAcc center of Shandong University of Finance and Economics, China
Kun-Shan Wu Department of Business Administration, Tamkang University, Taiwan https://orcid.org/0000-0001-9550-8840

DOI:

https://doi.org/10.5755/j01.ee.35.4.33729

Keywords:

ESG; corporate financial performance; inverted U-shaped; TMGT effect; sustainable development

Abstract

The purpose of this research is to clarify the curvilinear link between Environmental, Social and Governance (ESG) and corporate financial performance (CFP), and draws upon the “too much of a good thing” (TMGT) theory to verify whether the curvilinear relationship supports the conflicting results of previous studies. The sample comprises 69 listed companies in Taiwan with ESG disclosures over 2005 to 2020. The findings reveal that ESG impacts CFP in an inverted- U shaped, which is predominantly evident in the environmental and social pillars. This study validates the rising popularity of ESG investments. To enhance CFP, businesses must meticulously assess the allocation of capital to ESG to prevent under or over-investment. Managers should be aware of the TMGT effect and ensure the threshold of ESG is identified, as this is essential to balancing the cost/value trade-off, improving the CFP, and maintaining sustainable development.

Author Biographies

Xiaodong Teng, School of Accountancy, Shandong University of Finance and Economics, China

Xiaodong Teng is an associate professor in the School of Accountancy at Shandong University of Finance and Economics, Jinan City, Shandong Province, China. His research interests include ESG practices, incentive mechanisms, state-owned enterprise reform, accounting digital transformation, and business education AACSB accreditation. He has published six papers in SSCI or SCI journals of Q2 or above, authored one academic monograph, and edited two textbooks on accounting digital transformation. He is the founder of the International Alliance for Contemporary Accounting Development and has a certain reputation and influence in the accounting academia and industry in China.

Shouhai Wang, School of Accountancy, Shandong University of Finance and Economics, China

Shouhai Wang is a professor and Vice Dean in the School of Accountancy at Shandong University of Finance and Economics, Jinan City, Shandong Province, China. He specializes in international accounting and auditing standards, with over 20 first-authored papers. He has led six funded projects and received awards for his research. Additionally, he serves as a peer reviewer and consulting expert on accounting standards and investment evaluation.

Huiping Liu, School of Accountancy, Shandong University of Finance and Economics, China

Huiping Liu is a professor and Vice Dean in the School of Accountancy at Shandong University of Finance and Economics, Jinan City, Shandong Province, China. Her research covers green finance, corporate governance, and financial management. She has published over 40 papers in journals like China Management Science and The Economist. Liu has led multiple funded research projects, and her work has been widely recognized, leading to honors like consulting expert on accounting regulations in Shandong Province and outstanding teacher at her university.

Wengang Sun, MBA College, Shandong University of Finance and Economics, China

Wengang Sun is an associate professor and Associate Dean in the MBA College at Shandong University of Finance and Economics, Jinan City, Shandong Province, China. His research interests include internal auditing, internal control, and corporate governance.

Desheng Zhu, MPAcc center of Shandong University of Finance and Economics, China

Desheng Zhu is a professor and Director of the MPAcc center at Shandong University of Finance and Economics, Jinan City, Shandong Province, China. His research interests include capital market and corporate financial management. He has published more than 60 papers in journals such as Economic Dynamics, Economic Management, Nankai Business Review, and Economic and Management Review. He has also won several awards for his research and teaching achievements. He has been awarded the honorary title of outstanding teacher by the Ministry of Finance affiliated institutions, and the outstanding teacher and teaching master by Shandong University of Finance and Economics.

Kun-Shan Wu, Department of Business Administration, Tamkang University, Taiwan

Kun-Shan Wu is a distinguished professor in the Department of Business Administration at Tamkang University in Taiwan. ORCID: 0000-0001-9550-8840. His research interests are in the field of hospitality and tourism management, supply chain management, and sustainability. He is the author of more than 100 international publication. His studies have been published in leading journals such as Technological and Economic Development of Economy, Corporate Social Responsibility and Environmental Management, International Journal of Contemporary Hospitality Management, International Journal of Production Economics, and Oeconomia Copernicana. Finally, he has been recently included in the Top 2% Scientists Worldwide 2023 by Stanford University.