This research is motivated by the need to show whether environmental, social, and governance performance (ESG) is highly linked to the African companies’ performances, and national culture. Besides, this study examines the impacts of audit quality and the national culture on the relationship between financial performance and environmental, social, and governance (ESG) criteria.
The introduction of ESG practices has started lately in sub-Saharan African countries, but its implementation has been easier as the African context prones social factors that facilitate its development. Although several studies have explored the nexus between ESG, audit quality and firm financial performance, the outcomes of research on the financial performance-ESG’s relationship are contradicting and further research is needed.
These areas include (1) the mediating role of audit quality in the relationship between corporate governance and firm performance; (2) the moderated mediating role of national culture in the relationship between ESG and financial performance through audit quality, (3) the impact of each ESG characteristics such as environment, social, governance scores and audit firm size on firm performance. Thus, the aims of the study are to examine (1) the impact of environment, social, governance criteria on firm financial performance; (2) the relationship environment, social, governance criteria and audit quality; (3) the effect of audit quality on firm financial performance; (4) the mediating role of audit quality in the relationship ESG and firm financial performance; and (5) the ESG performance of companies deviating between firms from different countries, the last key objective is to fill the research gap by examining the moderated mediating role of the four cultural dimensions of Hofstede –power distance, uncertainty avoidance, individualism, and masculinity- on the impact of ESG on firm financial performance through audit quality.
Table of Contents
1. Introduction
1.1 Background of the Study
1.2 Justification of the Study in Africa
1.2.1 The ESG Context in Kenya
1.2.2 The ESG Context in Nigeria
1.3 Significance and Contributions of the Study
1.4 Research Questions and Objective of the Study
1.5 Conceptual Framework
1.5.1 Sustainable Finance
1.5.2 Overview of ESG
1.5.3 Firm financial performance
1.5.4 The ESG’s influence on firm’s financial performance
2.1.4 Triple Bottom-Line Theory
1.5.5 Measuring Audit quality
1.5.6 Measuring National culture
2. Literature Review
2.1 Linking ESG and Firm Financial Performance
2.1.2 Stakeholder Theory
2.1.2 Stewardship Theory
2.1.3 Legitimacy Theory
2.2 Linking Audit Quality and Financial Performance
2.2.1 Agency Theory
2.2.2 Summary of the Literature Review between ESG and Audit Quality
2.3 Linking National Culture, ESG and Financial Performance
2.3.1 Institutional Theory (Ubuntu theory)
2.3.2 Behavioural Theory
3. Hypothesis Development
3.1 E, S, G concepts and Financial Performance
3.1.1 Environmental Performance and financial Performance
3.1.2 Social Performance and Financial Performance
3.1.3 Corporate Governance and Corporate Financial Performance
3.2 ESG, Audit Quality and Financial Performance
3.2.1 Relationship between Audit Quality and Financial Performance
3.2.2 Relationship between ESG practices and Audit Quality
3.3 National Culture, ESG, Audit Quality and Financial Performance
3.3.1 Power distance
3.3.2 Masculinity/ Feminity
3.3.3 Individualism/ Collectivism
3.3.4 Uncertainty avoidance
4. Research Methodology
4.1 Research Design
4.2 Population of the study
4.3 Data Sources
4.4 Analysis Technique
4.5 Description of Variables
4.5.1 Dependent variables
4.5.2 Independent variables
4.5.3 Control variables
4.5.4 Mediating variable: Audit quality
4.5.5 Moderated Mediating variable: National culture
4.6 Econometric Analyses Approaches
4.6.1 Measuring the Impact of ESG on Financial Performance
4.6.2 Measuring the mediating effect of Audit Quality on ESG and Financial Performance
4.6.3 Measuring the Moderated Mediating of National Culture on ESG, Audit Quality and Financial Performance
4.6.4 Model Specification
4.6.5 Fixed Effect versus Random Effect
4.7 Data Analysis
4.7.1 Descriptive Results
4.7.2 Regression Assumptions Test and Model Specification Results
5. Results and Empirical Findings
5.1 Financial Performance and ESG
5.1.1 Results of the relation between Financial Performance and ESG
5.1.2 Robustness test
5.2 Mediating Effect of Audit Quality on the Relation between ESG and Financial Performance
5.3 Moderation Effect of National Culture Proxies on the Relation between ESG and Financial Performance
5.3.1 Power of distance
5.3.2 Masculinity
5.3.2 Uncertainty avoidance
5.3.4 Collectivism
5.3.5 Bootstraping Results
6. Conclusion, Policy Implications, and Future Studies
6.1 Discussions of the Results
6.1.1 ESG and Financial Performance
6.1.2 Discussions on the Results of Mediated Model
6.1.3 Discussions on the Results of the Moderated Mediation
6.2 Policy Implications of the study
6.2.1 Policy Implications about ESG
6.2.2 Policy Implications about ESG, National Culture and Financial Performance
6.3 Directions for Future Research
6.4 Limitations of the Study
Research Objectives and Themes
This research aims to investigate the complex relationships between Environmental, Social, and Governance (ESG) performance, audit quality, and national culture, and their joint impact on the financial performance of Kenyan and Nigerian firms. The central objective is to determine whether high audit quality mediates the link between ESG and financial success, and whether specific dimensions of national culture (based on Hofstede's framework) moderate this mediating relationship.
- Impact of ESG sub-dimensions (Environment, Social, Governance) on firm financial performance.
- The mediating role of audit quality, specifically focusing on audit firm size (Big4) and audit tenure.
- Moderation of the ESG-Audit Quality-Financial Performance nexus by national cultural dimensions (Power Distance, Masculinity, Individualism/Collectivism, Uncertainty Avoidance).
- Application of the Ubuntu (African humanism) philosophy as a context-specific institutional theoretical lens.
- Analysis of listed companies in Kenya and Nigeria using longitudinal panel data from 2011 to 2020.
Excerpt from the Book
1.2 Justification of the Study in Africa
Recent research relies on oversimplified models that focus exclusively on the direct association between ESG practices and financial performance (Cho, Chung, and Young 2019; Zahid et al. 2022), ignoring alternative moderating factors and mediating factors. Moreover, only a few ESG studies have examined all three ESG aspects and their influence on FP in a single scenario (Tarmuji, Maelah, and Tarmuji 2016) and especially in the African context. Considering these diverse findings, it is imperative to re-examine this nexus by including all ESG aspects when measuring their impact on FP.
While ESG is growing rapidly in Europe and the United States, its practices are in their infancy in sub-Saharan Africa. The literature on ESG in Africa is heavily dominated by South Africa, Morocco, Nigeria and Kenya. The emergence of the concept of ESG in sub-Saharan Africa is essentially the responsibility of the subsidiaries of the multinationals that operate there. They want to ensure that their activities respect international standards and the rights of local communities. Thus, they intend to place their ESG actions in a context of promotion of social development (health, education, human rights, etc.) and be responsible in the fight against poverty and contribution to the development of their area of exploitation. Nevertheless, the ambiguities observed sometimes handicap the valuation of ESG practices and raise the question of their credibility. One of the motivations of this study is to acknowledge the implication of ESG practices on the performance of Nigerian and Kenyan companies by engaging host communities for ethical business practices. This is relevant because, in pursuit of internal and external legitimacy, a significant impasse encountered by these firms is to maintain a focus of their operational strategies to match the communities’ expectations.
Summary of Chapters
Chapter 1 Introduction: Provides the background and problem statement regarding the relationship between ESG, audit quality, and financial performance, setting the foundation for the research objectives.
Chapter 2 Literature Review: Synthesizes existing theories—including Stakeholder, Stewardship, Legitimacy, and Ubuntu perspectives—and previous empirical studies on the nexus of ESG, audit quality, and financial outcomes.
Chapter 3 Hypothesis Development: Formulates the specific research hypotheses regarding the impacts of ESG components, the mediating role of audit quality, and the moderating effects of national culture dimensions.
Chapter 4 Research Methodology: Details the research design, data sources (350 firms from Kenya and Nigeria, 2011-2020), and the econometric techniques (panel data, moderated mediation analysis) used to test the models.
Chapter 5 Results and Empirical Findings: Presents the statistical analysis and findings, evaluating the direct relationship of ESG on performance and the mediating/moderating influences of audit tenure, Big4 auditors, and cultural proxies.
Chapter 6 Conclusion, Policy Implications, and Future Studies: Summarizes the study’s findings, discusses managerial and policy implications for African firms, and identifies limitations and avenues for future research.
Keywords
ESG, Big 4, Audit tenure, Financial performance, Collectivism, Uncertainty avoidance, Masculinity, Power of distance, Ubuntu theory, Sub-Saharan Africa, Corporate governance, Regression analysis.
Frequently Asked Questions
What is the core focus of this doctoral research?
The research investigates whether and how environmental, social, and governance (ESG) performance influences the financial outcomes of companies listed in Kenya and Nigeria, specifically examining how audit quality mediates this relationship and how national culture moderates it.
Which thematic areas does the work cover?
It integrates corporate finance, auditing, and corporate social responsibility (CSR) while applying cross-cultural management frameworks and African institutional theories like Ubuntu.
What is the primary research objective?
The primary goal is to examine the effects of audit quality (proxied by Big4 and audit tenure) and cultural factors on the relationship between ESG practices and corporate financial performance.
What scientific methods were employed?
The study uses a quantitative, longitudinal panel data approach covering 350 firms over the period 2011-2020, applying multiple regression models with SEM macros in STATA 15 to perform mediation and moderated mediation analysis.
What does the main body of the work treat?
The main body systematically explores definitions and theories, develops specific research hypotheses, establishes a robust methodological framework, and presents extensive empirical findings derived from regression and correlation analyses.
Which keywords define this dissertation?
Key terms include ESG, Big 4, Audit tenure, Financial performance, Collectivism, Uncertainty avoidance, Masculinity, Power of distance, and Ubuntu theory.
How is the Ubuntu theory integrated into this study?
The study uses Ubuntu as a distinctive African institutional/behavioral lens to explain how corporate management and social responsibility practices are locally rooted and differ from Western, purely instrumentalist finance models.
What is the conclusion regarding the impact of audit quality?
The results indicate that audit quality indeed mediates the relationship between ESG and firm performance, suggesting that firms with effective ESG practices signal their commitment through higher-quality audits, which in turn enhances their financial performance.
- Arbeit zitieren
- Ursule Yvanna Otek Ntsama (Autor:in), 2022, ESG and Financial Performance. The Effects of Audit Quality and National Culture in the Nigerian and Kenyan Context, München, GRIN Verlag, https://www.grin.com/document/1334026
