ESG performance, board characteristics, and investment efficiency: insights from emerging economies - Research paper

Oct 17, 2026

This study examines how firms’ environmental, social, and governance (ESG) performance relates to investment efficiency (IE) in emerging markets, and how board characteristics may strengthen or weaken this linkage. Using 361 nonfinancial firms across 14 emerging economies (2009–2021), panel-data regressions are applied, with GMM regressions for robustness and endogeneity. Overall ESG shows a positive and significant effect on IE, while environmental relates negatively and social and governance relate positively.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages17

Reading Time43 min

AccessFree to download

Abstract

Introduction

Background and motivation

CSR, CSP, and ESG concepts

Prior research on ESG and financial outcomes

Methodology and data (implied)

Findings (implied)

Implications (implied)

Limitations and future research (implied)

ESG performance, board characteristics, and investment efficiency: insights from emerging economies Ilker Yilmaz and Haitham Nobanee Abstract Purpose – This study aims to examine the relationship between firms’environmental, social, and governance (ESG) performance and their investment efficiency (IE), focusing on emerging markets. It investigates the moderating effects of board characteristics on this relationship. Design/methodology/approach – Using a sample of 361 nonfinancial firms from 14 emerging markets from 2009 to 2021, panel data regressions were employed. As a robustness check and to handle endogeneity, the authors also ran GMM regressions. Findings – The results of panel regressions revealed that overall ESG performance has a positive and significant impact on IE. However, the individual components of ESG exhibit varying effects: the social and governance scores positively influence IE, while the environmental score has a negative impact. Board size and gender diversity negatively moderate the ESG–IE relationship, whereas cultural diversity and board independence show no significant moderating effects. GMM regressions produced consistent results. Research limitations/implications – The study is limited by missing ESG data for some firms, which constrained the sample size. Future research could explore granular ESG factors and compare findings between emerging and developed markets to provide deeper insights. Practical implications – This study offers valuable insights for managers, investors and policymakers in emerging markets. Managers can enhance investment efficiency by integrating comprehensive ESG strategies that strengthen transparency, mitigate agency conflicts, and improve capital allocation. Investors mayuse ESG scores– particularly social and governance dimensions– as reliable indicators of efficient investment behavior. Policymakers can leverage the findings to design regulatory frameworks that promote standardized ESG reporting and encourage sustainable investment practices. Firms should also consider optimal board structures, as board size and gender diversity influence the effectiveness of ESG initiatives on investment efficiency. Social implications – The findings highlight the broader societal value of ESG engagement in emerging markets. Strong social and governance practices contribute to fair labor conditions, community development and responsible corporate conduct, ultimately enhancing trust among stakeholders. By demonstrating that ESG initiatives can improve investment efficiency, the study reinforces the idea that socially responsible behavior aligns with sustainable economic growth. Moreover, improved ESG practices support national and global sustainability agendas, particularly in regions where institutional frameworks are still developing. Encouraging ESG adoption can therefore foster more resilient, equitable and socially inclusive economic systems. Originality/value – This study provides empirical evidence from emerging markets, which are underrepresented in ESG research. It extends existing knowledge by examining the moderating role of board characteristics, offering a nuanced understanding of how governance structures influence the ESG performance relationship. The use of objective ESG scores from the LSEG Workspace database enhances the reliability and objectivity of the findings. Keywords ESG performance, Investment efficiency, Board characteristics, Emerging markets, Corporate sustainability Paper type Research paper Ilker Yilmaz is based at the Department of Finance and Accounting, College of Banking and Financial Studies, Muscat, Oman. Haitham Nobanee is based at the Department of Accounting and Finance, Abu Dhabi University, Abu Dhabi, United Arab Emirates, and Faculty of Humanities and Social Sciences, University of Liverpool, Liverpool, UK. Received 14 May 2025 Revised 17 November 2025 29 July 2026 Accepted 9 August 2026 DOI 10.1108/CG-05-2025-

FAQs

How does overall ESG performance affect investment efficiency in emerging markets?

Overall ESG performance has a positive and significant impact on investment efficiency based on the panel regression results.

Do different ESG components influence investment efficiency in the same way?

No. Social and governance scores positively influence investment efficiency, while the environmental score has a negative impact.

Which board characteristics moderate the ESG–investment efficiency relationship?

Board size and gender diversity negatively moderate the ESG–IE relationship, whereas cultural diversity and board independence show no significant moderating effects.

Oct 17, 2026

Uploaded by Quinn Holloway