The Relationship between Executive Compensation, Sustainability, and Performance: A Systematic Review ()
1. Introduction
Successful firms tend to emphasize social and environmental goals rather than exclusively focusing on short-term objectives tied to short-term financial indicators. By connecting executive compensation with sustainability performance, businesses demonstrate that sustainability brings value to the organization (Nigam et al., 2018). In contrast to financial performance indicators, which indicate a company’s prioritization of the past, sustainability performance indicators reveal a company’s commitments to the future. In addition, holding top executives accountable for sustainability performance indicates how serious firms are about becoming responsible corporate citizens (Brochet et al., 2012).
The traditional view of companies is that when their executives get the right rewards, they usually outperform their peers (Zuo et al., 2009). However, executives’ short-term compensation was partially responsible for the global economic crisis resulting from the USA’s collapse in market capitalization (Bebchuk & Spamann, 2010; Fahlenbrach & Stulz, 2011). Literature suggests that executive compensation practices have encouraged extreme risk-taking by banks and were one of the global 2007-2009 financial crisis factors by prioritizing short-term profits over long-term sustainability (Bennett et al., 2015).
On the contrary, not all companies have linked compensation with sustainability (Tonello, 2010). In 2011, Glass Lewis examined public companies from different countries such as France, Australia, Germany, the United Kingdom, and the USA and found that only 29% of companies linked compensation and sustainability (Nigam et al., 2018). This principle focuses on strengthening the relationship between the firm’s performance and incentive pay (Banker et al., 2000; Belcredi & Ferrarini, 2013; Flammer & Bansal, 2016).
In addition, due to global crises and scandals and the need to compete effectively in the market, companies are shifting their focus to maximize their stakeholders’ value and not only internal shareholders’ wealth (Nigam et al., 2018). In addition, various non-financial indicators that address environmental, social, and governance sustainability factors have been established in recent decades (Docekalova & Kocmanova, 2016). Executive compensation packages or plans vary from cash compensation to stock options, depending on the company. The overall goal behind these plans was always to maximize the shareholders’ value. Today, due to economic and financial scandals, the goals include other indicators and stakeholders, such as good corporate governance and retaining and attracting talented and key staff (Nguyen, 2015).
According to neoclassical economics (Berle & Means, 1932), a corporation’s primary objective is to maximize shareholder wealth. Because of this emphasis on finances, corporations usually link top executives’ compensation packages to financial performance. These incentive policies encourage chief executives to take risks. When the risks materialize, however, organizations are left without the means to absorb the failure. Consequently, these policies have been harshly criticized and are believed to have contributed to the 2007-2009 financial crisis (Lorsch & Khurana, 2010).
Kolk and Perego (2014) confirmed that the traditional economic measures related to executive compensation encouraged excessive risk-taking and irresponsible behavior and thus reflected government failure. Consequently, the EU High-Level Expert Group on Sustainable Finance (2018) has stressed the importance of including sustainability measures in designing remuneration contracts to direct managers’ behavior towards long-term and social goals. Such metrics include customer satisfaction, corporate social responsibility, employee well-being, stakeholder engagement, and environmental performance (FSB, 2017). Among the companies that have addressed sustainability issues is Intel Company in 2008. Consequently, the company’s gas emissions declined by 35% in 2012 while operations continued to grow (Nigam et al., 2018).
This paper aims to contribute to knowledge by investigating the direct relationships between the three perspectives: total executive compensation, sustainability, and performance. It will highlight any gaps in the related literature between 2000 and early 2022.
2. Definitions and Highlights
2.1. Executive Compensation
Executives are accountable for offering a balanced perspective on operational performance, financial assessments, and future strategies that may affect future success (Bassyouny & Abdelfattah, 2022). Despite the current economic downturn and financial crisis, executive compensation has grown dramatically, prompting public outcry and severe condemnation (Callan & Thomas, 2014). The purpose behind executive compensation is to incentivize executive and top-level management, “the decision-maker,” to serve and perform within the shareholders’ interest, strategically, and towards firm value creation (Nguyen, 2015).
As defined by Ntim et al. (2015), total executive compensation is the natural logarithm of yearly cash remuneration to bank executive directors scaled by the total number of directors who are executives in a fiscal year. In general, compensation includes a guaranteed package and short-term and long-term incentives. A salary, medical benefits, other allowances, and business pension fund contributions are frequently included in guaranteed packages (Van Wyk & Wesson, 2021).
On the other hand, executive management is crucial to the effective utilization of organizational resources in order to maximize shareholder value (Bussin, 2015), and their compensation is essential for investors to make investment decisions based on the production of sustained market returns (Correa & Lel, 2016). Executive remuneration is the sum of all monetary rewards and bonuses granted to executives in exchange for their contributions to the organization’s performance (Theku, 2014). Regardless of the sector, structure, or company size, executive compensation incentivizes upper-level management to make choices and perform according to shareholder interests and as a means of retaining executives (Chaudhri, 2003).
Furthermore, executive remuneration in financial services organizations was ignored before the 2007-2009 financial crisis, and most empirical research on executive compensation routinely omitted financial services firms from their samples. Following the financial crisis, executive remuneration, particularly in the financial services industry, has resurfaced as a source of heated discussion among regulators, market players, the media, and academics (Tian & Yang, 2014).
2.2. Sustainability (ESG Scores)
The concept of sustainability encompasses the organization’s entire value chain (Docekalova & Kocmanova, 2016). “sustainability” refers to ensuring long-term company success while contributing to social and economic growth, a clean environment, and a cohesive society (UNEP FI, 2020). Sustainability evolves all elements of the corporate environment, as well as social and governance challenges, to provide long-term shareholder value (Adams et al., 2013). From the firm’s perspective, sustainability can be defined as addressing the requirements of a company’s direct and indirect stakeholders without jeopardizing its capacity to accomplish its core business objectives (Dyllick & Hockerts, 2002). Thus, sustainability initiatives will enable the development of more effective internal control systems, and cost-cutting, leading to better decision-making (Adams, 2002).
Environmental, social, and governance (ESG) performance has drawn the attention of regulatory bodies and academics (Gallego, 2006; Ng & Nathwani, 2012; Kolsi et al., 2022). The ESG score is meant to assess ESG performance, effectiveness, and commitment, clearly and objectively across various categories based on publicly disclosed data. It combines environmental and social efforts with corporate governance metrics (Gerard, 2019; Shakil et al., 2019). The ESG score is among the most widely used sustainability indicators (Ahlklo & Lind, 2019).
Sustainability, ESG, and CSR have been increasingly used interchangeably (Nguyen, 2015). According to the reviewed literature, sustainability is represented as either sustainability or environmental, social, and governance (ESG) score and pillars.
2.2.1. Environmental Pillar
The environmental element involves how a business handles waste, carbon emissions, climate change, and pollution (Ahlklo & Lind, 2019). Environmental performance assesses a company’s ability to decrease greenhouse gas emissions, use natural resources effectively in manufacturing processes, and fund research and development of environmentally friendly goods and services (Birindelli et al., 2018). An environmentally friendly business can experience numerous benefits, including enhanced corporate sustainability, strengthened partnerships with external stakeholders, and an enhanced public image (Hart, 1995; Bansal, 2005). In addition to distinguishing a business from its competition, promoting environmental practices can boost productivity and inspire innovation (Iraldo et al., 2009; Kook & Kang, 2011).
2.2.2. Social Pillar
The social aspect consists of how a business treats its employees and the community. Employee relations, working environment, local community, diversity conflict management, and health and safety are paramount (Ahlklo & Lind, 2019).
McKenzie (2004) defined social sustainability as the outcomes of an organization’s socially sustainable strategies and policies. This social aspect of corporate sustainability describes how businesses can contribute to the social health of their societies by engaging with their stakeholders and addressing their particular needs, thereby ensuring their long-term viability and fostering exceptional customer and employee loyalty (Knoepel, 2001).
Furthermore, social performance assesses a company’s ability to inspire employee confidence and loyalty, defend fundamental human rights conventions, protect public health, and produce products with additional value (Birindelli et al., 2018).
2.2.3. Governance Pillar
Governance addresses how a corporation is managed. Policies, corruption, donations, bribery, and lobbying are included (Ahlklo & Lind, 2019).
With the globalization of economies and the rise of major corporations, corporate governance disclosure has become a critical problem for managers and stakeholders. Governance transparency reacts to the current institutional context and impacts stakeholder decision-making (Singh & Gaur, 2013).
Furthermore, corporate governance measures a company’s ability to function in the shareholders’ best interests through its management structures and practices (Birindelli et al., 2018).
Although most research looks at the total ESG score rather than the individual ESG pillars, indicating that investors evaluate the three ESG pillars differently (Halbritter & Dorfleitner, 2015), a study of the particular impact of the environmental, social, and governance pillars on firm performance is required, given that the effects of each ESG pillar vary depending on the industry’s sensitivity (Baldini et al., 2018). Researchers should undertake ESG and performance studies for industries rather than combining data from several sectors, as in previous studies (Godfrey & Hatch, 2007).
3. Performance
Scholars often have three alternatives for assessing business performance: accounting-based measurements, market-based indicators, or a combination of both. Several academics favor accounting-based performance measurements such as a firm’s return on assets (ROA) and return on equity (ROE) (Chen et al., 2021). Others have used market-based metrics such as Tobin’s Q (Wagner, 2010).
4. Related Theories behind the Relationships between the Three Perspectives
The literature has applied several theories to explain the relationship between the three perspectives. Some of these theories overlap, contradict, or complement each other.
4.1. The Impact of Compensation on Sustainability
No unified theory exists on the relationship between compensation and sustainability (Cai et al., 2011).
Agency Theory
The challenge of rewarding executives is a classic application of principal-agent theory. This theory’s core assumption is to resolve the conflict of interest between shareholders and managers because of their self-interest maximization (Jensen & Meckling, 1979; Salehyan et al., 2014). The principal (the shareholder) wants the agent (the management) to maximize shareholder value, but he or she cannot appropriately assess the executive’s response function. The executives’ objectives may differ from those of the shareholders. For instance, managers may be more interested in defending personal power or maximizing their wealth (Bebchuk & Fried, 2004).
Abdelmotaal and Abdel-Kader (2015) concluded that the link between managers’ compensation and sustainability practices might motivate executives to invest heavily in sustainability initiatives to receive extrinsic incentives. These activities can harm the shareholder’s wealth maximization in the short term. Consequently, the optimal answer to this puzzle would be to connect the appetites of executive directors with those of shareholders through different types and levels of compensation.
Stewardship Theory
In contrast to agency theory, stewardship theory views managers as self-motivated and non-opportunistic. It is predicated on the notion that CEOs are motivated to act morally even when it is not in their best interests (Davis et al., 1997). CEOs profit from doing so on a fundamental level, independent of economic considerations (Berrone & Gomez-Mejia, 2009). According to Etzioni (1986), the CEOs’ actions are motivated by a sense of moral obligation. Such CEOs have a natural drive to steer the company toward objectives that are not in their best interests. These CEOs prioritize moral obligations over financial rewards to the extent that they serve as stewards of the environment, which lessens their interest in monetary rewards.
Adopting contractual mechanisms to offer CEO incentives to serve stakeholders’ interests presupposes that CEOs behave rationally and self-interestedly. However, individuals may have reasons for pursuing other goals that promote non-self-interested plans to obtain other emotional or social benefits (Sen, 1987). Thus, CEOs increase their self-image by following organizational goals and attributing corporate successes to themselves (Davis et al., 1997). Consequently, the commitment of CEOs to their shareholders and their accountability to other stakeholders can be explained by stewardship theory, such as the natural environment (Driscoll & Starik, 2004).
Stakeholder Theory
On the other hand, there is the stakeholder theory. According to Freeman (1984), stakeholders are any group or person that can influence or be affected by fulfilling the firm’s objectives. This theory asserts that organizations could maximize the shareholder’s value by considering all stakeholder rights and interests (Mele, 2008). An organization should consider the interests of its multiple stakeholders and its shareholders to be recognized as a socially responsible business (Freeman et al., 2004).
Abdelmotaal and Abdel-Kader (2015) concluded that sustainability practices support conflict resolution under stakeholder theory. Consequently, executives will only invest in sustainability activities to gain personal benefits.
Institutional Theory
Institutional theory examines how organizations interact with various formal and informal laws, from stringent controls to looser formal restrictions (DiMaggio & Powell, 1983).
Because establishing solid relationships with stakeholders and society takes time, such an improvement is more likely to occur in the long run (Donaldson & Preston, 1995). Consequently, tying CEO compensation to future financial performance may incentivize initiatives that strengthen relationships with stakeholders and the community (Donaldson & Preston, 1995).
4.2. The Impact of Sustainability on Performance
Agency Theory
Agency theory focuses solely on maximizing shareholders’ wealth in the short term but has received global criticism (Hahn et al., 2010; Lenssen et al., 2010). This has prompted businesses to reconsider their strategy to accommodate the emergence of stakeholder theory (Friedman & Miles, 2002; Phillips, 2003).
Stakeholder Theory
Stakeholder theory indicates the link between sustainability and performance (Siueia et al., 2019). According to stakeholder theory, managers must have a positive connection with stakeholders to be successful (Tarmuji et al., 2016). Stakeholder theory asserts that organizations could maximize the shareholder’s value by considering all stakeholder rights and interests (Mele, 2008). Organizations implementing sustainability practices have a competitive edge in the marketplace by attracting more investors and lowering operational expenses (Manrique & Marti-Ballester, 2017).
In addition, beyond creating profits for its shareholders, a company’s obligation encompasses the interests and aspirations of all its stakeholders. All those involved in the value creation process, whether inside or outside the company, in addition to those directly or indirectly affected by a company’s operations, such as society and the environment, must be fairly rewarded by the company (Nigam et al., 2018).
Institutional
Following institutional theory, meeting social expectations means achieving corporate legitimacy (Scott, 2004). Corporate legitimacy provides several economic and non-economic benefits, such as a reduced chance of incurring costly penalties and legal and social punishments, increased resource access, and an enhanced capacity to attract and keep superior personnel, suppliers, and consumers. Consequently, this may boost the company’s long-term financial performance (Berrone & Gomez-Mejia, 2009).
Legitimacy Theory
The legitimacy theory proposes that organizations continually strive to function within the boundaries and standards of their societies (Deegan, 2000). It is predicated on the idea that a business operates in a community through social contracts, in which the company commits to undertake specific socially desirable actions in exchange for approval of its objectives (Haron et al., 2007). The community expects firms to set aside a portion of their revenues for environmental concerns, employee welfare, consumer protection, and community needs (Tinker & Nelmark, 1987).
In addition, legitimacy theory stresses that the firm must consider the rights of the whole public. Failure to comply with expectations may result in society imposing punishments. According to this view, a firm would report its activities willingly if its management believed those activities were anticipated by the communities in which it operates (Deegan, 2000).
Signaling Theory
Signaling theory indicates that firms that report on environmental issues, for example, send a signal that they are following a proactive environmental strategy since they are incentivized to voluntarily disclose more information to shareholders and other stakeholders (Clarkson et al., 1996; Bakar et al., 2011). Therefore, these positive signals increase the companies’ appeal to stock market investors, positively impacting performance (Loh et al., 2017).
Value-Creating vs Value-Destroying Theories
Two opposing theories attempt to define the influence of sustainability on corporations’ financial performance: value-creating and value-destroying. Value-creation theory posits that adopting environmental and social responsibility reduces a company’s risk. In contrast, the value-destroying theory predicts that firms involved in environmental and social responsibility will lose focus on profitability and prioritize pleasing stakeholders over shareholders (Yu & Zhao, 2015).
Slack Resource and Good Management Theories
Waddock and Graves (1997) discovered that sustainability positively relates to past performance and that slack resource theory supports this conclusion. This idea asserts that the availability of financial and other (slack) resources due to more excellent financial performance may lead firms to invest in social areas such as employee and community relations and the environment (Jensen, 1986).
Sustainability was also positively associated with future performance, with good management theory explaining this. This theory suggests that the strong relationship between sustainability and excellent management practice is attributable to management’s greater focus on sustainability domains, which improves relationships with stakeholders and, consequently, performance (Freeman, 1984).
4.3. The Impact of Compensation on Performance
Generally, executive compensation and performance links are based on two opposing but interconnected theoretical perspectives: agency and tournament (Elsayed & Elbardan, 2018).
Agency Theory
Nigam et al. (2018) explained that the incentive-based approach discussed in agency theory encourages management to engage in irresponsible risk-taking, which can be financially advantageous in the short term but disastrous for a company in the long term. In addition, it can encourage fraudulent behavior of managers and leaders to manipulate financial performance data, as was the case with Enron. Variable compensation can be granted in the form of equity, giving a percentage of ownership to executive directors. This could boost the executive directors’ consideration of long-term performance in their decision-making (Angeli & Gitay, 2015).
Tournament Theory
In contrast to agency theory, as cited by Elsayed and Elbardan (2018), tournament theory must find a clear link between remuneration and performance. It provides a basic framework to support the idea that rewarding executive directors fosters excellent performance at the company level (Conyon & Sadler, 2001). As a result, providing substantial rewards to individuals at the top of the corporate ladder fosters excellent performance at all levels (Conyon et al., 2001).
Although it may appear counterintuitive, the premise is that higher knowledge leads to superior rewards that inspire junior staff. As a result, they will put forth more effort to meet the entity’s goals. Executive pay will be more intricately linked to company performance (Elsayed & Elbardan, 2018).
Optimal Contracting vs Managerial Power Theories
Another two opposing theories are managerial power and optimal contracting (Murphy, 1999; Bebchuk & Fried, 2004; Cheng & Firth, 2006; Essen et al., 2012).
Optimal contracting theory considers effective managerial contracts, which help minimize agency problems by aligning the interests of managers and shareholders (Lin et al., 2012; Tang, 2012). Thus, this view predicts a positive relationship between executive compensation and performance, knowing executives have less control over determining their pay (Kato, 1997; Dong et al., 2010).
On the other hand, managerial power theory states that executive compensation relies on the close interpersonal relationships between weak corporate brands and influential executives (CEOs), which creates inefficient managerial contracts and increases the agency problems for the different interests of managers and shareholders (Sapp, 2008; Bebchuk & Weisbach, 2010). Bebchuk and Fried (2004) reported that the absence of a high number of shareholders enables CEOs to exert power over the board of directors, so choosing their own compensation may be at the shareholders’ expense. Therefore, executive compensation does not affect corporate performance as per this theory, as executives set their pay (Bebchuk & Fried, 2004; Essen et al., 2012).
A summary of the main articles with related applied theories can be found in Appendix I.
5. Methodology
Researchers can map the current research domain and suggest a course for future study with the help of a systematic review of the literature (Tranfield, Denyer, & Smart, 2003). Mapping and assessing prior research in response to a research agenda is done through systematic review, which depends on repeatable procedures
To achieve the targets of this paper, the author followed four steps. First, identify the search scope. The scope was to cover the most relevant English language publications, focusing on peer-reviewed articles, for the three direct relationships between the three perspectives. Second, setting the search criteria. The literature search was based on certain criteria, including the keywords in the title such as: “the relationship between, the link, the impact of, the effect of, the association, ‘executive’ compensation, sustainability, ESG score, performance, and bank’s performance.” Third, setting the search period. In order to have a more reliable review and results. Fourth, the time frame was extended between the year 2000 and early 2022.
In addition, the publications were mainly collected from several academic platforms officially provided by Northampton University and Google Scholar.
The number of articles was lowered to 193 when conference papers, book chapters, and papers not published in English in business, management, and sustainability journals were disregarded. Forty-four papers were eliminated after the articles were personally edited to ensure they met the eligibility requirements for quality, article type, and topic relevance. Therefore, 149 papers were included for the content analysis in the review to address this topic.
The following sections illustrate the empirical studies or literature on the three direct relationships between executive compensation, sustainability, and performance.
6. The Relationship between Executive Compensation and Sustainability
While the emphasis on rewarding and incentivizing executives to achieve long-term sustainability goals is increasing (Nguyen, 2015; Al-Shaer & Zaman, 2019), less attention is paid to the impact of including sustainability in executive compensation (Hartikainen et al., 2021), and how this affects the firm and its value. Thus, there is still a gap regarding the effectiveness of incorporating such targets in the compensation plans (Nguyen, 2015).
There has recently been increased pressure on businesses to fulfill ESG goals and incorporate sustainability performance into CEO remuneration plans. Although linking CEO compensation to sustainable performance is not a new topic, it has gained traction in recent years as an indication of its commitment to integrating sustainability as a fundamental purpose. As a result, senior executives are held accountable for short-term goals linked to the company’s financial success and long-term environmental and sustainability activities (Nigam et al., 2018). This is because tying compensation to ESG measures improves the long-term performance of companies. In addition, according to a 2013 survey by the UN and Accenture, more than 75% of executives believed that incorporating sustainability into core corporate operations would increase income and create new opportunities (Sullivan and Cromwell LLP, 2020).
On the other hand, scholars and practitioners have reservations about integrating incentives with sustainability, as there are adequate reasons not to integrate or link the two (Winschel & Stawinoga, 2019). Similarly, Maas and Rosendaal (2016) conducted a study to examine sustainability in executive remuneration on a sample from 11 global countries of 490 listed firms in different sectors. The study showed that 33% of the firms used sustainability in remuneration schemes.
Supporting that, the literature results on the relationship between executive compensation and sustainability are not confirmed; they are mixed between positive and negative, and there is no relationship (Al-Shaer & Zaman, 2019).
In addition, according to Winschel and Stawinoga (2019), by analyzing 37 empirical studies published between 1992 and 2018, they confirmed that most of the studies examine the relationship between compensation and sustainability in the USA, individual countries such as the UK, other international countries, but none in Europe. Furthermore, while all 37 studies used archival data, 35 used several quantitative research methods, such as different types of regression and correlation. However, only one used the Partial Least Square-Structural Equation Modeling (PLS-SEM) approach.
The following sub-sections illustrate the direct impact of executive compensation on sustainability from different perspectives as per the related literature.
6.1. A Direct Positive Impact of Executive Compensation on
Sustainability
As illustrated by different authors, including sustainability measures in compensation plans has several benefits and positive results (Mahoney & Thorne, 2006; Callan & Thomas, 2014; Tsang et al., 2021). First, it allows management actions to focus on the long-term strategy, which will improve the firm’s financial and non-financial performance (Ittner et al., 1997; Banker et al., 2000; Hassabelnaby et al., 2005; Velte, 2016; Flammer et al., 2019). Second, it will reduce the risk-taking by firms (Shin et al., 2020), neutralize the misconduct risk (FSB, 2017), and any unethical behavior such as manipulation of earnings (Hassabelnaby et al., 2010). Third, it helps strengthen the risk adjustment by measuring performance through a new lens (BCBS, 2011). In addition, the CEO of Novo Nordisk, who is among the best-performing CEOs worldwide, thinks that including CSR criteria in executive compensation is necessary as it enhances value creation in the long run and because social and environmental issues become financial issues in the long term (HBR, 2015).
Starting with studies done within different international countries and regions and in several industries using secondary data, Miniaoui et al. (2022), in their recent study based on 324 Anglo-Saxon and 310 European-listed corporations from 2006 to 2016, found that compensation is positively correlated to CSR disclosure, the higher CEO compensation, the better CSR disclosure. Shin et al. (2020) found in their recent study on 917 different companies between 2006 and 2018 a positive connection between compensation and non-financial measures by motivating managers to engage less in short-term oriented behaviors. The same results were found earlier by Ibrahim and Lloyd (2011) in their study on 357 global companies in 2004 data. In their empirical study, Nigam et al. (2018) included 16 companies or cases from four continents for the years 2014 and 2015. They concluded that incorporating sustainability goals in executive compensation would result in a more effective framework for long-term corporate health. They added that executives who fail to support such sustainability goals are unlikely to frame optimum corporate policies. Earlier, Jian and Lee (2015) found a positive connection between compensation and CSR in their study on 1,680 global companies between 1992 and 2011.
Other studies applied one single-country approach in different sectors using secondary data. Radu and Smaili (2021), using a sample of 164 Canadian enterprises from 2012-2018, found a positive impact of CSR-linked compensation on CSR performance. Abdelmotaal and Abdel-Kader (2015) researched a sample of 212 UK firms from the FTSE 350 between 2009 and 2011. Their study confirmed a positive relationship between sustainability incentives in executive compensation and environmental, social, and governance pillars. In addition, Tahir et al. (2019), in their study on 188 different companies in the UK between 2005 and 2014, found that incorporating non-financial long-term targets in executive contracts encourages executives to work towards the long-term benefit and success of the organization. In Germany, two studies were conducted. The first is by Velte (2016), who applied an empirical quantitative analysis to a sample of listed German companies on the Frankfurt Stock Exchange from 2010 to 2014. He concluded that sustainable compensation positively impacts ESG performance. Claassen and Ricci (2015) undertook the second study one year earlier. Their analysis of 126 DAX and MDAX companies between 2010 and 2012 revealed a positive connection between executive compensation and CSR.
Furthermore, many studies have been done in the USA. Derchi et al. (2021) found that CSR-linked compensation contracts for executives promote CSR performance in their empirical investigation of a sample of 746 publicly traded firms from 2002 to 2013. Veniero (2020), in his study on 472 companies between 2012 and 2018, found a positive correlation between compensation and ESG performance. Hong et al. (2015) predicted in their study, including 2,561 executive-level observations, that there is a direct connection between executive compensation contracts and CSR activity. They suggested that providing executives with direct CSR incentives effectively increases the firm social performance. Nguyen (2015) found the same results. Three companies were selected as cases to evaluate the relationship: Intel Corporation, Xcel Energy, and the Hershey Company. Intel and Xcel showed improved and positive results from CSR metrics in their compensation packages, but Hershey proved successful without utilizing CSR metrics. Thus, he concluded that companies’ success in sustainability initiatives stems from the intrinsic benefits these activities offer to their image or worth rather than compensation.
From the European perspective, little literature was done in Europe, as cited earlier by Winschel and Stawinoga (2019), and most research was done in the Americas, the Netherlands, and other countries worldwide (Al-Shaer & Zaman, 2019). Using data from 13 industrialized firms and 4379 firm-year observations covering 2002 to 2016, Haque and Ntim (2020) found a positive impact of compensation on process-oriented carbon performance with a positive effect on market value. Baraibar-Diez et al. (2019), in their study on 205 companies between 2005 and 2015, found a positive impact of sustainable compensation policy on ESG performance.
Furthermore, banking studies addressing the connection between executive compensation and sustainability are rare, which presents a rich topic for additional research (Kartadjumena & Rodgers, 2019; Haque & Ntim, 2020). D’Apolito et al. (2019) studied 42 banks between 2013 and 2017 and found a positive association between compensation and ESG performance. Kartadjumena and Rodgers (2019) found a positive impact of compensation on the environmental pillar in their research on Indonesian listed commercial banks throughout 2007-2014 data.
6.2. A Direct Negative Impact of Executive Compensation on
Sustainability
On the other hand, there are several reasons for the lack of sustainability in remuneration. Firms looking to embed ESG measures into their compensation policies should also be careful to avoid unintended consequences by executives pursuing specific ESG metrics regardless of how their cost to the business might lead to difficult-to-resolve disagreements between different stakeholder groups (Sullivan and Cromwell LLP, 2020).
Stanwick and Stanwick (2001), in their study of 186 firms in 1990 and 188 in 1991, found a negative relationship between compensation and environmental reputation. Comparable results were also concluded later by Francoeur et al. (2017) in their study on 520 global companies on 2009 data.
6.3. No or Weak Direct Impact of Executive Compensation on Sustainability
Furthermore, some studies found no or partial evidence on the link between compensation and sustainability. For example, McGuire, Dow, and Argheyd (2003) used the KLD (Kinder, Lydenberg, Domini Research and Analytics) rating and found no relationship between incentives and social performance.
In addition, Cordeiro and Sarkis (2008) discovered incomplete evidence of a correlation between CEO salary and environmental performance, suggesting that US corporations likely use this correlation as a management communication technique to maintain their relationships with stakeholders.
In conclusion, organizations should carefully weigh the benefits and dangers of adopting ESG benchmarks in pay plans to evaluate if implementing such standards would be advantageous. Firms should also ensure that they have the resources and skills required to effectively monitor and evaluate the performance of executives based on non-financial measures (Sullivan and Cromwell LLP, 2020).
Furthermore, from a theoretical background, according to stakeholder theory, a company’s responsibility extends beyond maximizing profits for its shareholders to encompass the interests and expectations of its stakeholders (Freeman, 1984; Nigam et al., 2018). All those who participate in the value creation process, whether within the firm (managers, shareholders, employees) or outside the firm (customers, suppliers), as well as those who are directly or indirectly affected by a company’s operations (society, local communities, the environment, and future generations), must be considered stakeholders and should be compensated appropriately by the company (Nigam et al., 2018).
On the other hand, the link between managers’ compensation and sustainability practices could, according to agency theory, lead executives to overinvest in sustainability activities in order to receive extrinsic incentives. These practices can hurt the short-term pursuit of shareholder wealth maximization (Abdelmotaal & Abdel-Kader, 2015).
Appendix II summarises the main articles on the relationship between compensation and sustainability.
7. The Relationship between Sustainability and
Performance
According to the literature, the relationship between sustainability and performance has the most significant portion or share. Broadly, and as Rajput et al. (2012) explained, the sustainability literature indicates three different thoughts. The first one supports sustainability and claims that it improves the corporate image and sales and positively impacts customer loyalty. The second opposes sustainability and shows that it reduces earnings and increases expenses. It leads to a lack of business concentration, which could be better utilized for the profitable operation of the organization. The third is neutral to sustainability and demonstrates that it is an exceptional charitable social act that does not affect profitability.
Alshehhi et al. (2018) revealed in their study on the relationship between sustainability and performance in 132 journal papers published between 2002 and 2017 that the USA, Spain, and China dominated that country-wise. No publication related to the banking industry, most studies used regression analysis, and only one study used the Partial Least Square (PLS) method. Similarly, in an earlier study based on 101 research papers published between 1992 and 2011 on the relationship between sustainability and firm performance by Goyal et al. (2013), only four articles were conducted in the banking sector (Moufty et al., 2021), and none was done on overall Europe. Besides, the existing literature on this topic primarily focuses on the USA context, pre-crisis time window, and non-financial firms (D’Apolito et al., 2019; Moufty et al., 2021). In addition, previous research examined the relationship between ESG and firm value by focusing on a specific pillar, such as the environment (Moufty et al., 2021) or social events (Li et al., 2018).
Earlier studies established no obvious and precise relationship between sustainability and performance. Results are inconsistent and even contradicting exhibiting positive, negative, insignificant, or mixed relationships (Surroca et al., 2010; Garay & Font, 2011; Shamil, 2012; Goyal et al., 2013; Madsen & Rodgers, 2015; Fatemi et al., 2015; Karim, Lee, & Suh, 2018; Brooks & Oikonomou, 2018; Shakil et al., 2019). Moreover, investigating the relationship between ESG performance and corporate performance is still inconclusive (Wang et al., 2016).
7.1. A Direct Positive Impact of Sustainability on Performance
This will start with studies conducted in different international countries or regions and various industries. Most of these studies considered accounting and market-based indicators for performance. Using a systematic review of 21 studies published between 2003 and 2019 in Australia and New Zealand, Huang’s (2021) study showed that the relationship between ESG and performance is positive and statistically significant but economically modest. The impact of the environmental pillar is more substantial than the social or governance pillars. The impact of ESG on ROA is more substantial than on ROE, which is, in turn, stronger than Tobin’s Q. Alshehhi et al. (2018) revealed in their study on the relationship between sustainability and performance in 132 journal papers published between 2002 and 2017 78% of publications reported a positive relationship between sustainability and performance. Busch and Friede (2018), in their study of 25 meta-analyses and one million observations, concluded a positive impact of environmental and social performance on ROA, ROE, and Tobin’s Q. Lopez-Arceiz et al. (2018), in their meta-analysis of 83 papers found a positive relationship between sustainability and performance. Using meta-analytical techniques on data from 31,773 East Asian firms reported in 28 empirical studies, Hou et al. (2016) discovered a positive association between ESG and performance, with the environmental pillar having a more substantial impact than the social pillar and social practice has a more substantial positive effect on ROA than on ROE. In addition, Orlitzky et al. (2003) conducted a meta-analysis of 52 studies containing 33,878 observations. They concluded that the relationship between corporate social performance and market value is positive. Finally, Albertini (2013), in his meta-analysis study covering 15 years (1996 to 2010), revealed a positive relationship between environmental and performance represented by ROA, ROE, and Tobin’s Q indicators.
Other studies were done in international countries, regions, and industries, but secondary data and regression or correlation were used as analysis tools. Few studies considered ROA as performance. For example, Alsayegh et al. (2020), on a sample of 1244 Asian companies from 2005 to 2017, found that environmental and social performance are positively related to ROA and more robust than the governance pillar. Similarly, Lys et al. (2015), in their study on 5,928 different international companies between 2002 and 2010, revealed a positive impact of CSR on ROA. In addition, Jo and Harjoto (2011) found a positive impact on ROA and Tobin’s Q. Similarly, but considering ROE, Aouadi and Marsat (2018) found that ESG controversies have an unexpectedly positive influence on the business value represented by ROE and Tobin’s Q, using a dataset of over 4,000 enterprises from 58 countries from 2002 to 2011. Furthermore, Yu and Zhao (2015) confirmed that sustainability minimizes conflicts among various stakeholders, resulting in less risky corporate behavior and stable growth. Overall, sustainability helps businesses maintain their market positions over the long term, opening them up to more lucrative investment opportunities.
In addition, different studies were done in other industries but in specific countries using regression or correlation methods. Some of these studies considered one measure for performance, while others used more than one. For example, Velte (2019), in his study on 775 German companies between 2010 and 2018, found a positive effect of ESG on ROA. Similarly, analyzing 500 Ghanaian cases between 2009 and 2013, Chen et al. (2016) recognized a positive relationship between CSR and ROA. Considering Tobin’s Q measure, Swarnapali (2018) examined data from 220 firms listed on the Colombo Stock Exchange (CSE) in Sri Lanka over four years and discovered a positive correlation between both variables. Similarly, Cormier et al. (2009) found in their research on Canadian enterprises that disclosing social and environmental information decreases information asymmetry and streamlines investment decisions, positively affecting performance. Besides, according to 2013 research on the Korean market, a company’s MSCI ESG score is associated with stock returns and Tobin’s Q (Kim et al., 2013).
Other studies considered more than one performance indicator in their research. Huang and Yang (2014), in their sample of 71 companies in Taiwan region from 2001 to 2005, revealed a positive impact of corporate social performance on ROA and ROE. Similarly, Rose (2016) showed that governance disclosure positively influenced ROA and ROE in Germany. In addition, Li et al. (2018), in their sample of 241 UK-listed companies from 2004 to 2013, found a positive impact of ESG on ROA and Tobin’s Q.
Furthermore, some researchers used overall performance or value terms. For example, using a sample of 351 UK firms from FTSE350 from 2002 to 2018, Ahmad et al. (2021) revealed that ESG score positively impacts corporate performance. From 2010 to 2014, Tarmuji et al. (2016) collected non-financial data from Malaysia and Singapore. They discovered that social and governance approaches influenced economic performance positively. In their study in China, Deng and Cheng (2019) found a positive impact of ESG on stock market performance. Besides, Landi and Sciarelli (2019), in their research on 40 Italian firms between 2011 and 2019, revealed a positive impact of ESG on market premium.
Other studies were done in a specific country and industry using secondary data. Two studies occurred in Pakistan, and the others were conducted in China. From Pakistan, Javeed and Lefen (2019), in their research on a sample of 133 firms in 8 Pakistani manufacturing sectors, revealed a positive link between CSR and firm performance (ROA and ROE). Using a selection of 76 Pakistani manufacturing firms listed on the Karachi Stock Exchange from 2009 to 2012, Afza et al. (2015), the study revealed a positive impact of CSR on both short-term and long-term performance represented by ROA and Tobin’s Q. In China, Zhao et al. (2018) found a positive impact of ESG on ROA and ROE from their study of 20 power generation firms from 8 Groups in China. Another study by Liu and Zhang (2017) found a positive impact of CSR on ROE and Tobin’s Q.
The context of the USA also has a part in the literature. Hannah et al. (2021), on a sample of 1180 covering the period from 2004 to 2012, found a positive impact of ESG dimensions on the market value represented by Tobin’s Q. The study examined 74 firms within the KEJI indexes from 2004 to 2008 and concluded a positive correlation between corporate value and economic contribution. Fatemi et al. (2018) found that ESG increases a firm’s value in terms of ROA and Tobin’s Q in their study of 403 companies between 2006 and 2011. Albuquerque et al. (2019), in their sample of 4670 from 2003 till 2015, found a positive impact of CSR on ROA and Tobin’s Q. Nollet et al. (2016) used Bloomberg’s Environmental, Social, and Governance (ESG) Disclosure score covering the S&P 500 firms from 2007-2011. A sample of Fortune 500 firms revealed positive results on the relationship between the management of social sustainability practices and improved ROA in firms (Sroufe & Gopalakrishna-Remani, 2019). Flammer (2013) discovered that adopting CSR suggestions might result in positive announcement returns and satisfying performance due to the correlation between such adoption and enhanced labor productivity and sales.
In addition, other researchers considered Europe the scope of their research. Paolone et al. (2020), on a sample of 41 European listed companies in the pharmaceutical industry 2019 data, found that ESG pillars positively impact marketing performance, especially the governance pillar. De Lucia et al. (2020), in their study on a sample of 1038 companies on 2018 and 2019 data, revealed a positive impact of ESG score on ROA and ROE. Similarly, from a selection of 150 listed companies from 2014 to 2017 applying the PLS-SEM method, Taliento et al. (2019) revealed a positive impact of ESG on ROA and ROE. Chen et al. (2015), In their study of 75 corporations employing structured content analysis, the researchers found a positive association between disclosure of corporate social performance and ROE. Similarly, De Villiers and Marques (2016) found that CSR positively impacts ROA.
Furthermore, the relationship between ESG and performance has been extensively investigated in different areas, with a few inconclusive studies in the banking sector that investigated the impact of individual environmental, social, and governance pillars and performance measures such as ROA, ROE, and Tobin’s Q (La Torre et al., 2021). Some studies considered one performance indicator. For example, Platonova et al. (2018) examined 24 banks in five Gulf Cooperation Council nations and found a positive correlation between sustainability and ROA. Other studies considered ROE as a measure of performance. Akanbi and Ofoegbu (2012) conducted a case study on Lagos’s United Bank for Africa (UBA). They verified that CSR positively affects organizational performance (ROE) and other non-financial indicators such as employee satisfaction, loyalty, public image, and goodwill. The same was concluded in a study by Mallin et al. (2014), which revealed a positive association between CSR and ROE. Earlier, Simpson and Kohers (2002) discovered a favorable association between CSR and ROE based on a sample of banks.
Moreover, other researchers considered more than one measure in their studies. Maqbool and Zameer (2018) looked at the same relationship in a sample of 28 Indian banks from 2007 to 2016 and found a positive effect of CSR on ROA and ROE. Finally, Siueia et al. (2019) looked at the same connection in a sample of ten banks in two African nations, South Africa and Mozambique, from 2012 to 2016. They showed that sustainability and ROA and ROE have a positive connection. Moreover, the empirical findings of Wu and Shen’s (2013) analysis of 162 banks in 22 nations demonstrated a positive correlation between CSR and performance in terms of ROA, ROE, and other economic indicators. Szegedi et al. (2020) indicated that sustainability positively impacted ROA and ROE in 20 Pakistani banks from 2008 to 2018. Cornett et al. (2014) investigated the impact of social performance on the performance of 190 banks in the USA and found a positive impact on ROA and ROE. Shen et al. (2016), in their sample of 6125 international banks for the period 2000 to 2009, found a positive impact of CSR on both ROA and ROE. Wu et al. (2017) used a sample of 162 banks from 2003 to 2009 in an international selection of 22 countries, the results showed that banks engaged in CSR tend to have better performance and that sustainability has a positive influence on both ROA and ROE.
7.2. A Direct Negative Impact of Sustainability on Performance
Opposite to the previous view, Yu and Zhao (2015) believed that sustainable involvement could divert resources and investment to activities not in shareholders’ best interests. According to this viewpoint, implementing sustainability initiatives may reduce a company’s value. Another opposing view is agency theory, in which a manager is inclined to deploy business resources above the optimal level of CSR to earn private benefits, resulting in decreased firm value due to heightened agency conflict amongst investors (Choi et al., 2009).
Different studies were done in different countries and industries using archived data and applying regression, correlation, or PLS-SEM. Duque-Grisales and Aguilera-Caracuel (2019) found in their research on 104 multinationals between 2011 and 2015 a negative impact of ESG score on ROA, ROE, and Tobin’s Q. Kartadjumena and Rodgers (2019) used a partial least square-structural equation model during the period 2007 to 2014 in Indonesian banks, found that corporate sustainability negatively influences both the firm’s financial health and market value regarding environmental concerns. Nekhili et al. (2021), using data from 91 companies in France from 2007 to 2017, found a negative impact of ESG on Tobin’s Q. Amritha and Balasubramanian (2019) found that ESG negatively impacted Tobin’s Q in their study on 35 Indian companies from 2014 and 2018. Besides, a negative impact of sustainability practices on ROA and ROE is revealed in Lopez et al. (2007) analysis of two groups of 55 homogenous industry firms listed on the DJSI and Dow Jones Global Index (DJGI) between 1998 and 2004. Smith et al. (2007) discovered a negative connection between environmental disclosure and performance represented by ROA and ROE, using a sample of 40 Malaysian firms on 2001 data.
Barnea and Rubin (2010) proposed a similar concept using data from a sample of 2650 Americans in 2013. They stated that managers may over-invest in social responsibility efforts at the expense of shareholders for their gain and to enhance their reputations as socially responsible leaders. Furthermore, according to Moneva and Cuellar (2009), disclosing environmental information decreases profits and market value while increasing expenses. For instance, they sampled 44 companies in Spain between 1996 and 2004. They discovered that environmental information investors provide does not influence their investment decisions and is deemed irrelevant.
7.3. A Weak or No Impact of Sustainability on Performance
Starting with studies that found a weak impact of sustainability on performance, on a list of the top 300 Australian Securities Exchange listed companies for the three years 2008 to 2010, Balatbat et al. (2012) found a weak impact of ESG score on ROA and ROE. Siregar and Bachtiar (2010) found a weak effect of CSR on ROA and ROE in their study of 87 Indonesian listed companies in 2003 data. Cormier and Magnan (2007) found no correlation between the disclosure of environmental information and the market value of Canadian and French enterprises. In their analysis of 87 USA companies between 2001 and 2008, Guidry and Patten (2010) discovered that the announcement of the release of sustainability reports did not generate any meaningful market reaction. Gallardo-Vazquez et al. (2019) found a weak impact of CSR on ROE based on a meta-analysis using 95 studies between 1982 and 2018.
From another point of view, some researchers explained that there is no relationship between sustainability and performance. Some researchers considered one performance measure. Nega (2017), from a sample of 119 large companies in the USA, found no impact of CSR on ROE. Using a selection of 90 banks in Indonesia between 2012 and 2016, Mangantar (2019) found that neither corporate social responsibility nor corporate governance affected ROA. While Surroca et al. (2010), using a sample of 599 industrial firms between 2001 and 2005, found no impact of CSR on Tobin’s Q.
Other researchers considered more than one measure of performance. Some studies considered accounting-based measures only. For example, Mukhibad et al. (2020) looked at the impact of CSR through 12 Islamic banks in Indonesia from 2012 to 2018 and found no effect on ROA or ROE. Using 629 firm-year observations of the FTSE350 index, Qiu et al. (2016) confirmed no relationship between environmental disclosure and ROA or ROE. Nor et al. (2016) revealed no impact of the environmental pillar on ROE or ROA, using data from 100 Malaysian firms in 2011. In a sample of 42 firms in South Africa from 2004 to 2013, Chetty et al. (2015) found no impact of CSR on ROA or ROE. In a recent study, La Torre et al. (2021), using panel estimation methods of 600 European listed banks between 2008 and 2019, discovered no causal relationship between ESG score and ROA or ROE.
Other studies have also considered both accounting and market-based performance measures. For example, Atan et al. (2018), in a sample of 54 Malaysian firms between 2010 and 2013, found no impact of ESG on ROE or Tobin’s Q. From a selection of 267 stock-year observations of Nordic firms, Ahlklo and Lind (2019), found no relationship between ESG score and accounting nor market-based performance. The environmental pillar showed the most robust relation to performance. Besides, no conclusions can be drawn regarding financial performance. Schreck (2011) found no impact of social performance on ROE or Tobin’s Q in his study of 128 firms on 2006 data. Johansson et al. (2015), in their study of 167 Swedish firms between 2006 and 2009, found no impact of CSR on ROA or Tobin’s Q.
7.4. Mixed Findings on the Impact of Sustainability on
Performance
Using a meta-analysis of over 1000 studies published between 2015 and 2020, Whelan et al. (2021) discovered a favorable association between ESG and financial success for 58% of “business” studies focusing on operational measures such as ROE, ROA, or stock price. In addition, 13% demonstrated a neutral impact, 21% showed mixed results (the same study found positive, neutral, and negative results), and only 8% showed a negative relationship. Earlier, using a meta-analysis reviewing 32 previous studies between 1996 and 2013, mixed and inconsistent results exist in the literature regarding the relationship between sustainability and corporate performance. Nevertheless, other academics contend that a generalizable, unidirectional link applies to all organizations in all circumstances does not exist (Grewatsch & Kleindienst, 2017).
Different studies were done on different international countries and industries. Buallay (2020), using data from 3000 firms and 80 countries from 2008 to 2017, found that ESG score negatively impacts ROA. However, each of the pillars has a positive impact on ROA separately. On the other hand, there is no impact of ESG score on ROE or Tobin’s Q. Despite the lack of a correlation between ESG score and accounting-based financial success (ROA), Dahlberg and Wiklund (2018) discovered a positive link between ESG score and Tobin’s Q. using 108 firms and 995 firm-year observations between 2007 to 2017. A different study by Han et al. (2016) of the Korean market yielded other conclusions. Distinct ESG variables have different relationships to market-based financial success, according to this empirical research of 94 businesses listed on the Korean Stock Exchange. The governance component had a positive relationship with ROE, but the environmental factor had a negative relationship. The social component was neutral since no connection was found. Sahut and Pasquini-Descomps (2015) examined monthly stock excess performance for several Swiss, US, and UK firms and their linked news-based ratings in key ESG areas, spanning five years from 2007 to 2011. They discover a neutral or slightly negative association with the overall ranking for the UK but not for the USA or Switzerland.
Other studies were done in the context of the USA. Alareeni and Hamdan (2020), using a sample covering the USA S&P 500 listed companies from 2009 to 2018, found that ESG score positively impacts performance measures. However, at the ESG pillars level, environmental and social harm ROA and ROE, and a positive effect on Tobin’s Q. Furthermore, the governance pillar has a positive impact on ROA and Tobin’s Q. and a negative impact on ROE. Qureshi et al. (2021), employing a sample of “100 best corporate citizens” in the USA from 2009 to 2018, confirmed a positive impact of ESG score and pillars on ROE and Tobin’s Q, the higher impact of environmental pillar, and no effect on ROA. Delmas et al. (2015), on a sample of 1095 USA banks from 2004 to 2008, found a positive impact of the environmental pillar on Tobin’s Q and a negative effect on ROA.
Furthermore, several studies were done in the banking sector, some of which considered accounting-based measures only. For example, according to Simsek and Cankaya (2021), banks’ environmental and governance pillars negatively impacted ROA and ROE, while social pillars positively impacted ROA and ROE. Shakil et al. (2019), using 93 emerging market banks from 2015 to 2018, found a positive impact of environmental and social performance on ROA and ROE but no influence on governance performance.
Other studies considered both accounting and market-based measures. For example, another study conducted in the European banking sector on 342 banks from 2007 to 2016 found a high environmental and social disclosure impact on Tobin’s Q and no impact on governance disclosure (Buallay, 2019b). Buallay et al. (2020) used a sample of 59 banks to explore the same connection in 18 MENA nations. According to the empirical data, sustainability positively affects Tobin’s Q, ROA, and ROE. However, the social pillar has a negative impact on Tobin’s Q, ROA, and ROE. Miralles-Quiros et al. (2019), on a sample of 166 banks from 2010 to 2015, found a positive association between environmental and governance performance and Tobin’s Q. On the other hand, there is a negative association between social performance and Tobin’s Q. Daszynska-Zygadlo et al. (2021), on a sample of 2693 banks for the period 2009 to 2016, confirmed the results that environmental and social pillars have a negative effect on performance and partly confirmed that governance pillar has a positive effect on performance.
Moreover, a few studies have been done in the banking sector, but only in the European context. Using a sample of 235 European banks from 2007 to 2016, Buallay (2019a) determined that combining ESG positively affected performance. However, environmental disclosure positively affects ROA and Tobin’s Q, whereas social disclosure negatively impacts the three dimensions. In addition, corporate governance disclosure has a negative impact on ROA and ROE. In contrast, it has a positive impact on Tobin’s Q dimension. Batae et al. (2021), using data from 39 European banks for the period 2010 to 2019, showed a positive relationship between the environmental pillar and performance, no impact of the social pillar, and a negative impact of the governance pillar.
Furthermore, from a theoretical background, agency theory is founded on the supposition that the company’s primary goal is to increase the wealth of its owners. As a result, other stakeholders are only significant when doing so is necessary to enhance shareholder value (Seifert et al., 2003). Thus, with the shareholders’ approval, companies engaging in sustainability initiatives create clarity, which ultimately results in an agency issue that could result in a decline in performance (Afza et al., 2015). On the other side, according to stakeholder theory and as argued by Freeman (1984), the company’s management now has a responsibility that extends beyond profitability and requires them to consider social issues when making choices. This is because the corporation is responsible for considering and satisfying all stakeholders, not just shareholders.
Appendix III summarises the main articles on the relationship between sustainability and performance.
8. The Relationship between Executive Compensation and Performance
The previous literature has shown different findings regarding the relationship between executive compensation and performance: positive, negative, and no relationship (Kirsten & Toit, 2018; Rodgers et al., 2019). Studies carried out in the USA, as well as studies in the banking industry in general, are rare (Nascimento et al., 2020).
The global corporate scandals and financial problems have shifted the subject of whether high executive compensations are worthwhile to boost business performance and prevent financial deterioration (Kartadjumena & Rodgers, 2019).
Different studies have demonstrated the significant impact of CEO compensation packages on the performance of businesses. Nevertheless, there are often contradictory results (Jha, 2013; Nikolov & Whited, 2014). Moreover, most studies have been undertaken inside a single country or corporate governance setting (the USA or the Anglo-American model).
Besides, several studies have analyzed the most effective forms of compensation. However, the link between compensation and corporate performance is still weak for several reasons (Canarella & Nourayi, 2008; Dong et al., 2010; Elsila et al., 2013; Kabir, Li, & Veld-Merkoulova, 2013). First, corporate governance is one of several reasons for reducing agency conflicts (Borisova et al., 2012). Second, countries have differences in executive pay regarding cultural, institutional, and corporate governance practices (Conyon & Murphy, 2000).
8.1. A Direct Positive Impact of Executive Compensation on
Performance
Some studies were conducted on international listed firms. Wang et al. (2021) found in their recent study on a sample of 212 energy companies for the period 2010 to 2019 that compensation has a positive impact on ROA, ROE, and Tobin’s Q. Yang et al. (2014) in their study between 1992 and 2011 on 3286 different firms and 6242 different CEOs revealed a positive relationship between total executive compensation and accounting-based performance represented by ROA in the pre-crisis and post-crisis periods. Stanwick and Stanwick (2001), in their study on 186 firms in 1990 and 188 in 1991, found a strong positive relationship between total compensation and performance represented by ROE.
Other studies were done in a specific country and different sectors. Raithatha and Komera (2016) found in their analysis of 3,100 firms in India between 2002 and 2012 that compensation positively impacts ROA, ROE, and Tobin’s Q. In addition, Bussin and Ncube (2017) also found a positive relationship between executive remuneration and company performance in entities in South Africa. The positive association was noted in absolute profitability measurements such as ROA, ROE, and net profit. Another study in South Africa by Ndlovu et al. (2017), using a sample of 359 firms between 2010 and 2015, revealed a positive impact of CEO compensation on ROA and ROE. Similarly, De Wet (2013) studied CEO Compensation in South Africa. The results showed a positive link between compensation and both ROA and ROE. In the UK, Elsayed and Elbardan (2018), using data period (2010 to 2014) for 350 listed companies, found a positive impact of compensation on ROA and Tobin’s Q. Another recent study in the UK, by Boakye et al. (2021), using a sample of 201 Alternative Investment Market listed firms from 2011 to 2016, revealed that the chief executive officer (CEO) remuneration positively impacted both accounting and market-based measures of financial performance. Moving to China, Conyon and He (2012) discovered a favorable association between executive compensation and accounting and stock value using data collected from 2000 to 2010 from China’s publicly traded enterprises. In their study of 15,512 CEOs from 1993 to 2006, Banker et al. (2012) found a positive correlation between current remuneration on one side and past and future value on the other.
In addition, on a sample of USA insurance companies, Sun et al. (2013) observed a positive correlation between company efficiency and overall compensation, as well as between revenue efficiency and cash compensation, based on the efficiency aspect. In Europe, in their sample of 1594 firms and databases from 2019, Noja et al. (2020) found that management incentives positively impacted European firms regarding value and earnings.
Furthermore, a few studies were done in the banking sector. Van Blerck (2013), using data on 16 banks in the USA and South Africa between 2001 and 2011, revealed a positive impact of executive remuneration on economic value. In Bangladesh, for the period 2010 to 2020, using a 2SLS estimator, Ahmed (2022) revealed a positive impact of compensation on bank performance represented by ROE.
8.2. Other Findings on the Impact of Executive Compensation on Performance
Many studies indicated a negative relationship between executive compensation and firm performance (Lam et al., 2013; Usman et al., 2015). For example, several studies found that performance-based remuneration leads to decreased motivation, increased fraud, and employee bullying in the workplace (Aguinis et al., 2013; Samnani & Singh, 2014). Bussin and Nel (2015), using a sample of 30 South African firms between 2006 and 2011, concluded a negative relationship between CEO-guaranteed pay and ROE.
Other studies found a weak or no relationship or impact of compensation on performance.
Ozkan (2007) found comparable results after performing a study on 390 non-financial UK firms from 1999 to 2005. The results indicated that a 10% increase in shareholder return corresponds to a rise of only 0.75% in CEO compensation. Another study by Kirsten and Toit (2018) examined listed companies on the Johannesburg Stock Exchange in South Africa. They concluded that executive compensation is not causally related to profitability represented by either ROA or ROE. Earlier, Duffhues and Kabir (2007) found the same results with ROA and ROE and Tobin’s Q measure in their study on Netherlands firms between 1998 and 2001. Lindstrom and Svensson (2016), in their research on 900 Swedish companies between 2010 and 2014, found no impact of compensation on ROA and ROE.
Furthermore, from a theoretical background, two primary, opposing, yet interconnected theories have been presented to explain the relationship between executive compensation and performance, as well as agency and tournament theories (Elsayed & Elbardan, 2018). The agency theory emphasizes the conflicting goals of executive directors (the agents), who are hypothesized to seek great rewards with minimal effort, and owners (the principles), whose goal is to maximize returns from ownership (Elsayed & Elbardan, 2018). Tournament theory provides a basic framework in favor of the belief that high compensation for senior directors motivates success at all organizational levels (Conyon & Sadler, 2001).
Appendix IV summarises the main articles on the relationship between compensation and performance.
9. Conclusion
The results showed a positive impact of total executive compensation on all sustainability factors represented by ESG score, environmental pillar score, social pillar score, and governance pillar score. Incorporating ESG pillars in CEOs’ or executives’ remuneration means increasing the value for internal shareholders and different stakeholders. New forms of contracting should be created and followed. Accordingly, related policies and procedures should be revised or built based on these findings.
In addition, the results showed mixed outcomes regarding the relationship between sustainability and performance. While the results revealed a positive impact of ESG score on all performance dimensions, the results for the individual pillars were mixed between accepted and rejected. In addition, the environmental pillar does not impact any of the performance dimensions. Not all shareholders, owners, or management know the concept of sustainability and its implications. The results, whether at the ESG score or specifically at the social and governance pillars level, send the bank a clear indicator of the added value or positive impact of sustainability on short-term and long-term performance and value. Accordingly, boards of directors should start the process of sustainability awareness for their banks and businesses.
Furthermore, the results showed a positive impact of total executive compensation on performance. Most compensation and rewards are related to or built on short-term measures or key performance indicators (KPIs). The added value in these results is that banks should consider accounting-based indicators and market-based measures that should be counted in setting performance targets and performance appraisals for executives.
These findings have some implications for decision-makers regarding the link between executive compensation and sustainability factors. Decision-makers should consider this positive link to set contracts for executives and CEOs based on banks’ sustainability factors, investment, and long-term objectives. Accordingly, policies and procedures should either include these factors or be updated. The same can be applied in Europe, the USA, or even globally, as well as in any other sector, not just the banking industry. In addition, the results of this thesis have some implications regarding the link between sustainability and performance. Decision-makers and policymakers should consider this association by setting long-term objectives and targets for their banks and firms. Consequently, policymakers in various countries, such as the Securities and Exchange Commission, should work to offer precise standards for sustainable banking reporting to promote sustainable banking disclosures.
Furthermore, the results revealed a positive impact of compensation on performance. The same is a clear signal for boards and decision-making in banks and other industries to link executives’ compensation to short-term and long-term performance indicators and results.
Acknowledgements
All the authors greatly thank for the University of Northampton and its aca demic and administrative team.
Appendix I: Summary of Main Articles with Related Applied Theories
Author(s) |
Year |
Theories Applied |
The relationship between compensation and sustainability |
Agency |
Stakeholder |
Institutional |
Stewardship |
Jian and Lee |
2015 |
|
Stakeholder |
|
|
Radu and Smaili |
2021 |
|
Stakeholder |
|
|
Baraibar‐Diez et al. |
2019 |
Agency |
Stakeholder |
Institutional |
|
Haque and Ntim |
2020 |
Agency |
Stakeholder |
Institutional |
|
McGuire et al. |
2003 |
Agency |
Stakeholder |
|
Stewardship |
Veniero |
2020 |
Agency |
Stakeholder |
|
|
Nigam et al. |
2018 |
Agency |
Stakeholder |
|
|
Abdelmotaal and Abdel-Kader |
2015 |
Agency |
Stakeholder |
|
|
Velte |
2016 |
Agency |
Stakeholder |
|
|
Karim et al. |
2018 |
Agency |
Stakeholder |
|
|
Kartadjumena and Rodgers |
2019 |
Agency |
Stakeholder |
|
|
Cai et al. |
2011 |
Agency |
Stakeholder |
|
|
Miniaoui et al. |
2022 |
Agency |
Stakeholder |
|
|
Francoeur et al. |
2017 |
Agency |
|
Institutional |
Stewardship |
Claassen and Ricci |
2015 |
Agency |
|
Institutional |
|
Berrone and Gomez-Mejia |
2009 |
Agency |
|
Institutional |
|
D’Apolito et al. |
2019 |
Agency |
|
|
|
Flammer et al. |
2019 |
Agency |
|
|
|
Derchi et al. |
2021 |
Agency |
|
|
|
Author(s) |
Year |
Theories Applied |
The relationship between sustainability and performance |
Agency |
Stakeholder |
Legitimacy |
Institutional |
Signaling |
Slack Resource and Good Management |
Value Creating vs Value Destroying |
Loh et al. |
2017 |
Agency |
|
Legitimacy |
|
Signaling |
|
|
De Villiers and Marques |
2016 |
Agency |
|
Legitimacy |
|
|
|
|
Flammer et al. |
2019 |
Agency |
|
|
|
|
|
|
Liu and Zhang |
2017 |
Agency |
|
|
|
|
|
|
Alareeni and Hamdan |
2020 |
Agency |
|
|
|
|
|
|
Alsayegh et al. |
2020 |
Agency |
Stakeholder |
Legitimacy |
|
Signaling |
|
|
Siueia et al. |
2019 |
Agency |
Stakeholder |
Legitimacy |
|
|
|
|
Javeed and Lefen |
2019 |
Agency |
Stakeholder |
|
|
|
|
|
Afza et al. |
2015 |
Agency |
Stakeholder |
|
|
|
|
|
Li et al. |
2018 |
Agency |
Stakeholder |
|
|
|
|
|
Jo and Harjoto |
2011 |
Agency |
Stakeholder |
|
|
|
|
|
Tarmuji et al. |
2016 |
Agency |
Stakeholder |
|
|
|
|
|
Maqbool and Zameer |
2018 |
Agency |
Stakeholder |
|
|
|
|
|
Shakil et al. |
2019 |
Agency |
Stakeholder |
|
|
|
|
|
Wang et al. |
2016 |
Agency |
Stakeholder |
|
|
|
|
|
Batae et al. |
2021 |
Agency |
Stakeholder |
|
|
|
|
|
Kartadjumena and Rodgers |
2019 |
Agency |
Stakeholder |
|
|
|
|
|
Surroca et al. |
2010 |
Agency |
Stakeholder |
|
|
|
|
|
Huang |
2021 |
|
Stakeholder |
Legitimacy |
|
|
|
|
Qureshi et al. |
2021 |
|
Stakeholder |
Legitimacy |
|
|
|
|
Gallardo-Vazquez et al. |
2019 |
|
Stakeholder |
Legitimacy |
|
|
|
|
Chen et al. |
2015 |
|
Stakeholder |
|
Institutional |
|
|
|
Taliento et al. |
2019 |
|
Stakeholder |
|
Institutional |
|
|
|
Velte |
2019 |
|
Stakeholder |
|
|
|
|
|
Huang and Yang |
2014 |
|
Stakeholder |
|
|
|
|
|
Orlitzky et al. |
2003 |
|
Stakeholder |
|
|
|
|
|
Sroufe and Gopalakrishna-Remani |
2019 |
|
Stakeholder |
|
|
|
|
|
Landi and Sciarelli |
2019 |
|
Stakeholder |
|
|
|
|
|
Aouadi and Marsat |
2018 |
|
Stakeholder |
|
|
|
|
|
Kim et al. |
2013 |
|
Stakeholder |
|
|
|
|
|
Szegedi et al. |
2020 |
|
Stakeholder |
|
|
|
|
|
Platonova et al. |
2018 |
|
Stakeholder |
|
|
|
|
|
Ahmad et al. |
2021 |
|
Stakeholder |
|
|
|
|
|
Lopez-Arceiz et al. |
2018 |
|
Stakeholder |
|
|
|
|
|
Boaventura et al. |
2012 |
|
Stakeholder |
|
|
|
|
|
Qureshi et al. |
2019 |
|
Stakeholder |
|
|
|
|
|
Sahut and Pasquini-Descomps |
2015 |
|
Stakeholder |
|
|
|
|
|
Miralles-Quiros et al. |
2019 |
|
Stakeholder |
|
|
|
|
|
Whelan et al. |
2021 |
|
Stakeholder |
|
|
|
|
|
Atan et al. |
2018 |
|
Stakeholder |
|
|
|
|
|
Johansson et al. |
2015 |
|
Stakeholder |
|
|
|
|
|
Ahlklo and Lind |
2019 |
|
Stakeholder |
|
|
|
|
|
Nega |
2017 |
|
Stakeholder |
|
|
|
|
|
Nekhili et al. |
2021 |
|
Stakeholder |
|
|
|
|
|
Balatbat et al. |
2012 |
|
Stakeholder |
|
|
|
|
|
Paolone et al. |
2020 |
|
|
Legitimacy |
Institutional |
|
|
|
Mukhibad et al. |
2020 |
|
|
Legitimacy |
|
|
|
|
Rose |
2016 |
|
|
Legitimacy |
|
|
|
|
Hou et al. |
2016 |
|
|
|
Institutional |
Signaling |
|
|
Duque-Grisales, and Aguilera-Caracuel |
2019 |
|
|
|
Institutional |
|
|
|
Chetty et al. |
2015 |
|
|
|
|
|
Slack Resource and Good Management |
|
Alshehhi et al. |
2018 |
|
|
|
|
|
|
Value Creating vs Value Destroying |
Swarnapali |
2018 |
|
|
|
|
|
|
Value Creating vs Value Destroying |
Yu and Zhao |
2015 |
|
|
|
|
|
|
Value Creating vs Value Destroying |
Author(s) |
Year |
Theories Applied |
The relationship between compensation and performance |
Agency |
Tournament |
Managerial Power |
Elsayed and Elbardan |
2018 |
Agency |
Tournament |
|
Wang et al. |
2021 |
Agency |
Tournament |
|
Boakye et al. |
2021 |
Agency |
Tournament |
|
Bussin and Nel |
2015 |
Agency |
|
Managerial power |
Duffhues and Kabir |
2008 |
Agency |
|
Managerial power |
Raithatha and Komera |
2016 |
Agency |
|
|
Noja et al. |
2020 |
Agency |
|
|
Theeravanich |
2013 |
Agency |
|
|
Bussin and Ncube |
2017 |
Agency |
|
|
Lindstrom and Svensson |
2016 |
Agency |
|
|
De Wet |
2013 |
Agency |
|
|
Conyon and He |
2012 |
Agency |
|
|
Van Blerck |
2012 |
Agency |
|
|
Li et al. |
2018 |
Agency |
|
|
Ahmed |
2022 |
Agency |
|
|
Appendix II: Summary of Main Articles Related to the Relationship between Compensation and Sustainability
Title |
Year |
Author(s) |
Industry |
Country |
Tool |
Sample |
Period |
Data collection |
Source, Dataset |
Sustainability Factor |
Relationship |
Getting compensation right—The choice of performance measures in CEO bonus contracts and earnings management |
2019 |
Tahir et al. |
Different |
UK |
Regression |
188 |
2005-2014 |
Archived |
FTSE350 Index |
Non-financial measures |
Positive |
The use of non-financial performance measures in CEO compensation contracts and stock price crash risk |
2020 |
Shin et al. |
Different |
Global |
Regression |
917 |
2006-2018 |
Archived |
S&P 500 index |
Non-financial measures |
Positive |
The association between non-financial performance measures in executive compensation contracts and earnings management |
2011 |
Ibrahim and Lloyd |
Different |
Global |
Regression |
357 |
2004 |
Archived |
Proxy statements |
Non-financial measures |
Positive |
Sustainable compensation and performance: an empirical analysis of European banks |
2019 |
D’Apolito et al. |
Banking |
Europe |
Regression and correlation |
42 |
2013-2017 |
Archived |
Eikon-Thomson Reuters |
ESG |
Positive |
CEOs compensation schemes: the mediating effect of ESG performance on finance performance |
2020 |
Veniero |
Different |
USA |
Regression |
472 |
2012-2018 |
Archived |
S&P 500 index |
ESG |
Positive |
Can linking executive compensation to sustainability performance lead to a sustainable business model? Evidence of implementation from enterprises around the world |
2018 |
Nigam et al. |
Different |
Global |
Empirical study |
16 |
2014-2015 |
Annual reports |
Proxy statements and annual reports |
ESG |
Positive |
The use of sustainability incentives in executive remuneration contracts Firm characteristics and impact on the shareholders’ returns |
2015 |
Abdelmotaal and Abdel-Kader |
Different |
UK |
Regression |
212 |
2009-2011 |
Archived |
FTSE 350 index. ASSET4 |
ESG |
Positive |
Sustainable compensation policies and its effect on environmental, social, and governance scores |
2019 |
Baraibar‐Diez et al. |
Different |
Europe |
Regression |
205 |
2005-2015 |
Archived |
DataStream |
ESG |
Positive |
Sustainable management compensation and ESG performance – the German case |
2016 |
Velte |
Different |
Germany |
Regression |
677 firm-year observations |
2010-2014 |
Archived |
Frankfurt Stock Exchange |
ESG |
Positive |
Corporate Governance and CSR Disclosure: International Evidence for the Period 2006–2016 |
2022 |
Miniaoui et al. |
Different |
Anglo-Saxon and European |
Regression |
324 Anglo-Saxon and 310 European |
2006-2016 |
Archived |
Listed |
CSR |
Positive |
Corporate Governance and the Rise of Integrating Corporate Social Responsibility Criteria in Executive Compensation: Effectiveness and Implications for Firm Outcomes |
2019 |
Flammer et al. |
Different |
USA |
Regression |
4,533 firm-year observations |
2004-2013 |
Annual proxy statements |
Annual proxy statements |
CSR |
Positive |
The Use of Sustainability Metrics in Executive Compensation Plans and Their Effect on Corporations |
2015 |
Nguyen |
Different |
USA |
|
3 cases |
|
Annual reports |
Case studies |
CSR |
Positive |
Executive compensation, sustainable compensation policy, carbon performance and market value |
2020 |
Haque and Ntim |
Different |
Europe |
Fixed-effects regressions |
494 |
2002-2016 |
Archived |
Thomson Reuters, Worldscope database |
E (carbon reduction) |
Positive |
CEO compensation structure and corporate social performance |
2015 |
Claassen and Ricci |
Different |
Germany |
Regression |
126 |
2010-2012 |
Annual reports and archived |
Annual report, Thomson Reuters |
CSR |
Positive |
Corporate social responsibility and CEO compensation structure |
2018 |
Karim et al. |
Different |
USA |
Regression |
4,344 |
1998–2012 |
Archived |
Compustat, KLD, Execucomp |
CSR |
Positive |
CEO compensation and corporate socialresponsibility |
2015 |
Jian and Lee |
Different |
Global |
Regression |
1,680 |
1992-2011 |
Archived |
Execucomp |
CSR |
Positive |
Exploring the locus of profitable pollution reduction |
2002 |
King and Lenox |
Manufacturing |
USA |
Regression |
614 |
1991-1996 |
Archived |
Annual reports |
Environment |
Positive |
Environmental performance and executive compensation: An integrated agency-institutional perspective |
2009 |
Berrone and Gomez-Mejia |
Polluting industries |
USA |
Regression |
469 |
1997– 2003 |
Archived |
ExecuComp, S&P 1500 index |
Environment |
Positive |
Corporate Governance and Executive Compensation for Corporate Social Responsibility |
2015 |
Hong et al. |
Different |
USA |
Regression |
2,561 executive-level observations |
2015 |
Archived |
2014 Proxy Statements |
CSR |
Positive |
Executive Compensation, Sustainability, Climate, Environmental Concerns, and Company Financial Performance: Evidence from Indonesian Commercial Banks |
2019 |
Kartadjumena and Rodgers |
Banking |
Indonesia |
PLS-SEM |
252 |
2007-2014 |
Archived |
(IDX) website, DataStream |
Environment |
Positive |
CEO compensation: does it pay to be green? |
2001 |
Stanwick and Stanwick |
Different |
|
Regression |
168 and 188 |
|
Archived |
Annual reports |
Environment |
Negative |
Green or Greed? An Alternative Look at CEO Compensation and Corporate Environmental Commitment |
2017 |
Francoeur et al. |
Different |
Global |
OLS regression model with industry-fixed effects |
520 |
2009 |
Archived |
Osiris, SIRI pro, BoardEx |
Environment |
Negative |
Vice or Virtue? The Impact of Corporate Social Responsibility on Executive Compensation |
2011 |
Cai et al. |
Different |
USA |
Regression |
1,946 |
1996-2010 |
Archived |
ExecuComp, S&P 500 firms |
CSR |
No relationship |
CEO incentives and corporate social performance |
2003 |
McGuire et al. |
Different |
Global |
Regression |
374 |
1999 |
Archived |
KLD, S&P, ExecuComp |
CSR |
No relationship |
Does explicit contracting effectively link CEO compensation to environmental performance? |
2008 |
Cordeiro and Sarkis |
Different |
USA |
Regression |
207 |
1997 |
Survey and archived |
Survey, S&P 500 firms |
Environment |
Partial |
Appendix III: Summary of Main Articles Related to the Relationship between Sustainability and Performance
Title |
Year |
Author(s) |
Industry |
Country/Region |
Tool |
Sample |
Period |
Data collection |
Source, Dataset |
Sustainability factor |
Firm value |
Relationship |
Sustainable management compensation and ESG performance – the German case |
2016 |
Velte |
Different |
Germany |
Regression and correlation |
677 firm-year observations |
2010-2014 |
Archived |
Frankfurt Stock Exchange |
ESG |
ROA |
Positive |
An empirical analysis on value relevance of corporate social responsibility activities by firm size |
2011 |
Na and Hong |
different |
USA |
OLS regressions |
600 |
1993-2000 |
Archived |
KLD |
CSR |
ROA |
Positive |
Executive compensation, sustainable compensation policy, carbon performance and market value |
2020 |
Haque and Ntim |
Different |
Europe |
Fixed-effects regressions |
494 |
2002-2016 |
Archived |
Thomson Reuters, Worldscope database |
E (Carbone reduction) |
Market value |
Positive |
Firm performance and comply or explain disclosure in corporate governance |
2016 |
Rose |
Different |
|
|
|
|
|
Annual reports |
G |
ROA, ROE |
Positive |
How do ESG pillars impact firms’ marketing performance? A configurational analysis in the pharmaceutical sector |
2020 |
Paolone et al. |
Pharma |
Europe |
|
41 |
2019 |
|
Annual reports |
ESG |
Marketing performance |
Positive |
Does CEO power moderate the link between ESG performance and financial performance? |
2019 |
Velte |
|
Germany |
Regression and correlation |
775 |
2010-2018 |
Archived |
Thomson Reuters |
ESG |
ROA |
Positive |
An Analysis of Corporate Social Responsibility and Firm Performance with Moderating Effects of CEO Power and Ownership Structure: A Case Study of the Manufacturing Sector of Pakistan |
2019 |
Javeed and Lefen |
manufacturing |
Pakistan |
|
133 |
2008-2017 |
Archived |
SBP, SECP, PSX |
CSR |
ROA, ROE |
Positive |
Corporate social performance: why it matters? Case of Taiwan |
2014 |
Huang and Yang |
|
Taiwan region |
Multiple regression analysis |
71 |
2005-2011 |
Archived |
Taiwan Economic Journal database |
CSP |
ROA, ROE |
Positive |
Corporate Social Responsibility behavior: Impact on Firm’s Financial Performance in an information technology driven society |
2016 |
Chen et al. |
Different |
Ghana |
Regression |
500 |
2009-2013 |
Archived |
GIPC, GRCD, GSE |
CSR |
ROA |
Positive |
Does CSR practice pay off in East Asian firms? A meta-analytic investigation |
2016 |
Hou et al. |
|
East Asia |
Meta-Analysis |
28 |
|
|
Empirical studies |
ESG |
ROA, ROE, Tobin’s Q |
Positive |
Whether Companies Need to be Concerned about Corporate Social Responsibility for their Financial Performance or Not? A Perspective of Agency and Stakeholder Theories |
2015 |
Afza et al. |
Manufacturing |
Pakistan |
least squares method |
76 |
2009-2012 |
Archived |
Karachi Stock Exchange, Balanced panel data |
CSR |
ROA, Tobin’s Q |
Positive |
A Study of Management Perceptions of the Impact of Corporate Social Responsibility on Organizational Performance in Emerging Economies: The Case of Dubai |
2009 |
Rettab et al. |
Different |
UAE |
Regression |
280 |
|
Survey |
Survey |
CSR |
ROA |
Positive |
Sustainability and firm valuation: an international investigation |
2015 |
Yu and Zhao |
Different |
Global |
Regression |
2,544 |
1999-2011 |
Archived |
Annual lists of DJSI |
ESG |
Tobin’s Q |
Positive |
The impact of environmental, social, and governance disclosure on firm value: The role of CEO power |
2018 |
Li et al. |
|
UK |
Regression |
241 |
2004-2013 |
Archived |
Bloomberg |
ESG |
ROA, Tobin’s Q |
Positive |
corporate governance and the rise of integrating corporate social responsibility criteria in executive compensation: effectiveness and implications for firm outcomes |
2019 |
Flammer et al. |
Different |
USA |
Regression |
4533 firm-year observations |
2004-2013 |
Archived |
Annual proxy statements |
CSR |
ROA, Tobin’s Q |
Positive |
Corporate social responsibility and financial performance in Islamic banks |
2014 |
Mallin et al. |
Islamic Banks |
Global |
OLS regression |
90 |
2010-2011 |
Archived |
Annual reports, Banker database |
CSR |
ROE |
Positive |
Management, Social Sustainability, Reputation, and Financial Performance Relationships: An Empirical Examination of U.S. Firms |
2019 |
Sroufe and Gopalakrishna-Remani |
Different |
USA |
SEM |
Fortune 500 firms simultaneously list |
2009-2011 |
Archived |
Fortune 500 listed in the Newsweek Green Rankings, The Corporate Knights Global 100, and the 100 Best Corporate Citizens lists |
S |
ROA |
Positive |
Application of multi-level matching between financial performance and corporate social responsibility in the banking industry |
2017 |
Wu et al. |
Banking |
Global |
Regression and correlation |
22 |
2003-2009 |
Archived |
194 depository-type banks |
CSR |
ROA, ROE |
Positive |
corporate sustainability reporting and firm value: evidence from a developing country |
2018 |
Swarnapali |
Different |
Sri Lanka |
Regression |
220 |
2012-2016 |
Archived |
CSE |
Sustainability reporting |
Tobin’s Q |
Positive |
Sustainability Reporting and Firm Value: Evidence from Singapore-Listed Companies |
2017 |
Loh et al. |
Different |
Singapore |
Regression and correlation |
502 |
|
Archived |
Bloomberg, Osiris and company disclosures |
Sustainability reporting |
Market value |
Positive |
The relationship between disclosures of corporate social performance and financial performance: Evidences from GRI reports in manufacturing industry |
2015 |
Chen et al. |
Manufacturing |
Europe, Asia and America |
Content analysis and correlation |
75 |
2012 |
Archived |
Database DataStream, GRI report |
CSP |
ROE |
Positive |
ESG performance and firm value: The moderating role of disclosure |
2018 |
Fatemi et al. |
Different |
USA |
Cross-correlations and regression |
403 |
2006-2011 |
Archived |
KLD and Bloomberg |
ESG |
ROA, Tobin’s Q |
Positive |
Effects of “Best Practices” of environmental Management on Cost Advantage |
2000 |
Christman |
Chemical |
USA |
Regression and wave analysis |
512 only 88 responses |
|
Questionnaire |
Survey |
E |
CFP |
Positive |
Revisiting the corporate social performance-financial performance link: A replication of Waddock and Graves |
2016 |
Zhao and Murrell |
|
|
Regression and correlation |
25,502 firm-year observations |
1991-2013 |
Archived |
KLD |
CSP |
Tobin’s Q |
Positive |
Attributes of social and human capital disclosure and information asymmetry between managers and investors |
2009 |
Cormier et al. |
Different |
Toronto |
Regression |
131 |
2005 |
Archived |
Toronto Stock Exchange, 2004 proxy statement |
E, S |
Tobin’s Q |
Positive |
Do Corporate Standards Global Create Environmental or destroy Market Value? |
2000 |
Dowell et al. |
Manufacturing |
Global |
Regression and correlation |
89 |
1994-1997 |
Archived |
IRRC, S&P 500 list |
E |
Tobin’s Q |
Positive |
The Effect of Corporate Environmental Strategy Choice and Environmental Performance on Competitiveness and Economic Performance: An Empirical Study of EU Manufacturing |
2004 |
Wagner and Schaltegger |
Different |
Germany and UK |
Regression and correlation |
1000 UK and 2000 Germany |
1998-2000 |
Survey |
Survey |
E |
CFP |
Positive |
Corporate Social Responsibility: Country-Level Predispositions and the Consequences of Choosing a Level of Disclosure |
2016 |
De Villiers and Marques |
Different |
Europe |
Regression and correlation |
366 |
2007-2010 |
Archived |
GRI reports |
CSR |
ROA |
Positive |
Corporate Governance and Firm Value: The Impact of Corporate Social Responsibility |
2011 |
Jo and Harjoto |
Different |
|
Regression |
2,952 |
1993-2004 |
Archived |
KLD |
CSR, E |
ROA, Tobin’s Q |
Positive |
Corporate social and financial performance: A meta-analysis |
2003 |
Orlitzky et al. |
|
|
Meta-analysis |
33,878 observation |
|
|
Studies |
CSR |
CFP |
Positive |
The relationship between CSR and financial performance: A quantitative study examining Swedish publicly traded companies |
2015 |
Johansson et al. |
Different |
Sweden |
Regression |
167 |
2006-2009 |
Archived |
FIFCR |
CSR |
ROA, Tobin’s Q |
Positive |
Impact of corporate social responsibility on bank performance in Nigeria |
2012 |
Akanbi and Ofoegbu |
Banking |
Nigeria |
Regression |
|
2010-2014 |
Archived |
Annual reports |
CSR |
ROE |
Positive |
The link between corporate social and financial performance: Evidence from the banking industry |
2002 |
Simpson and Kohers |
Banking |
global |
Regression |
385 |
1993/1994 |
Archived |
FDIC |
CSP |
ROA |
Positive |
To engage or not to engage in corporate social responsibility: Empirical evidence from global banking sector |
2016 |
Shen et al. |
Banking |
global |
Regression |
6,125 |
2000-2009 |
Archived |
FTSE4Good |
CSR |
ROA, ROE |
Positive |
Does Environmental Management Improve Financial Performance? A Meta-Analytical Review |
2013 |
Albertini et al. |
Different |
Global |
Meta-analysis |
52 |
1972-1995, 1996-2008 |
Archived |
ScienceDirect, EJS Ebsco, EconLit, JSTOR, Emerald, SSRN, AoM, and Cairn databases |
E |
ROA, ROE, Tobin’s Q |
Positive |
Climate Change and Financial Performance in Times of Crisis |
2014 |
Gallego-Alvarez et al. |
Intensive greenhouse gas/CO2 emissions |
Global |
Regressions |
855 |
2006-2009 |
Archived |
local regulators, press reports |
E |
ROA |
Positive |
Corporate Social Responsibility and Firm Risk: Theory and Empirical Evidence |
2019 |
Albuquerque et al. |
Different |
USA |
Regression |
4,670 |
2003-2015 |
Archived |
KLD |
CSR |
Firm value (Tobin’s Q) |
Positive |
Can ESG Indices Improve the Enterprises’ Stock Market Performance?—An Empirical Study from China |
2019 |
Deng and Cheng |
|
China |
Regression |
|
2011-2019 |
Archived |
WIND database |
ESG |
Stock market performance |
Positive |
Towards a more ethical market: the impact of ESG rating on corporate financial performance |
2019 |
Landi and Sciarelli |
Different |
Italy |
Panel data analysis |
40 |
2007-2015 |
Archived |
Thomson Reuters database, publicly accessible dataset from standard ethics agency |
ESG |
Market premium |
Positive |
ESG and Corporate Financial Performance: Empirical Evidence from China’s Listed Power Generation Companies |
2018 |
Zhao et al. |
Power Generation |
China |
Regression |
|
2008-2012 |
Archived |
Thomson Reuters |
ESG |
ROA, ROE |
Positive |
Do ESG Controversies Matter for Firm Value? Evidence from International Data |
2018 |
Aouadi et al. |
Different |
Global |
Regression |
4,000 |
2022-2011 |
Archived |
Thomson Reuters |
ESG |
ROE, Tobin’s Q |
Positive |
The Impact of Environmental, Social and Governance Practices (ESG) on Economic Performance: Evidence from ESG Score |
2016 |
Tarmuji et al. |
|
Malaysia and Singapore |
Regression |
Malaysia 35 and Singapore 45 |
2010-2014 |
Archived |
ASSET4 database |
ESG |
EP |
Positive |
Corporate Social Responsibility and Financial Performance: The impact of the MSCI ESG Ratings on Korean Firms |
2013 |
Kim et al. |
Different |
Korea |
Regression |
96 |
2011 |
Archived |
MCSI |
CSR |
Tobin’s Q |
Positive |
Signaling through corporate accountability reporting |
2015 |
Lys et al. |
Different |
|
Regression |
5,928 |
2002-2010 |
Archived |
ASSET4 database |
CSR |
ROA |
Positive |
Corporate governance, social responsibility information disclosure, and enterprise value in China |
2017 |
Liu and Zhang |
Heavy-pollution industries |
China |
Regression |
968 |
2008-2014 |
Archived |
CSMAR database |
CSR |
ROE, Tobin’s Q |
Positive |
Corporate Social Responsibility and its Impact on Financial Performance: Investigation of U.S. Commercial Banks |
2014 |
Cornett et al. |
Banking |
USA |
Regression |
277 |
2003-2011 |
Archived |
MSCI ESG Stats |
CSR |
ROA, ROE |
Positive |
Corporate Social Responsibility and Financial Performance: Evidence from Pakistani Listed Banks |
2020 |
Szegedi et al. |
Banking |
Pakistan |
Regression |
20 |
2008-2018 |
Archived |
Annual reports |
CSR |
ROA, ROE |
Positive |
The Impact of Corporate Social Responsibility Disclosure on Financial Performance: Evidence from the GCC Islamic Banking Sector |
2018 |
Platonova et al. |
Banking |
GCC |
Regression |
24 |
2000-2014 |
Archived |
Annual reports |
CSR |
ROA |
Positive |
Corporate social responsibility in the banking industry: Motives and financial performance |
2013 |
Wu and Shen |
Banking |
Global |
Regression |
162 |
2003-2009 |
Archived |
Reputation SBD index (REIRIS database) |
CSR |
ROA, ROE |
Positive |
Corporate Social Responsibility and financial performance: A comparative study in the Sub-Saharan Africa banking sector |
2019 |
Siueia et al. |
Banking |
South Africa and Mozambique |
Regression |
10 |
2012-2016 |
Archived |
Annual reports |
CSR |
ROA, ROE |
Positive |
Corporate social responsibility and financial performance: An empirical analysis of Indian banks |
2018 |
Maqbool and Zameer |
Banking |
India |
Regression |
28 |
2007-2016 |
Archived |
Bombay Stock Exchange |
CSR |
ROA, ROE |
Positive |
Corporate social responsibility and financial performance: Fact or fiction? A look at Ghanaian banks |
2014 |
Ofori et al. |
Banking |
Ghana |
Regression |
22 |
2009 |
Questionnaire survey SBD |
Survey |
CSR |
ROA, ROE |
Positive |
Environmental, social and governance (ESG) activity and firm performance: a review and consolidation |
2021 |
Huang |
Studies |
Australia and New Zealand |
Correlation |
21 |
1980-2019 |
Archived |
Systematic |
ESG |
CFP |
Positive |
Revisiting the impact of ESG on financial performance of FTSE350 UK firms: Static and dynamic panel data analysis |
2021 |
Ahmad et al. |
Different |
UK |
GLS regression |
351 |
2002-2018 |
Archived |
FTSE350, ASSET4 databases |
ESG |
CFP |
Positive |
Corporate Economic, Environmental, and Social Sustainability Performance Transformation through ESG Disclosure |
2020 |
Alsayegh et al. |
Different |
Asia |
Regression and correlation |
1,244 |
2005-2017 |
Archived |
Thomas Reuters |
ESG |
ROA |
Positive |
Twenty Years of Research on the Relationship Between Economic and Social Performance: A Meta-analysis Approach |
2018 |
Lopez-Arceiz et al. |
Different |
Global |
|
678/83 |
|
|
Web of Science, Scopus, and ABI/Inform |
CSP |
CFP |
Positive |
The robustness of the corporate social and financial performance relation: a second-order meta-analysis |
2018 |
Busch and Friede |
Different |
Global |
|
25 (one million observations) |
|
Archived |
Studies |
E, S |
CFP |
Positive |
Corporate social responsibility and financial performance: A non-linear and disaggregated approach |
2016 |
Nollet et al. |
Different |
USA |
Panel regression |
all firms listed in the SandP500 stock market index |
2007-2011 |
Archived |
Bloomberg, KLD |
ESG, CSR |
ROA |
Positive |
Does Corporate Social Responsibility Lead to Superior Financial Performance? A Regression Discontinuity Approach |
2013 |
Flammer |
Different |
USA |
Regression |
2,729 |
1997-2011 |
Archived |
Risk Metrics and Shark Repellent |
CSR |
ROA, ROE, Tobin’s Q |
Positive |
The Impact of Sustainability Practices on Corporate Financial Performance: Literature Trends and Future Research Potential |
2018 |
Alshehhi et al. |
Studies |
Global |
Content analysis |
132 |
2002-2007 |
Archived |
Top-tier journals |
Corporate sustainability |
ROA, ROE, Tobin’s Q |
Positive |
Corporate Financial Performance and Corporate Social Performance: Methodological Development and the Theoretical Contribution of Empirical Studies |
2012 |
Boaventura et al. |
Studies |
|
Regression |
58 |
1996-2010 |
Archived |
Ebsco, ProQuest, and ISI |
CSP |
ROA, ROE, Tobin’s Q |
Positive |
Do environmental, social and governance performance affect the financial performance of banks? A cross-country study of emerging market banks |
2019 |
Shakil et al. |
Banking |
Global |
Correlation |
93 |
2015-2018 |
Archived |
Asset4 ESG database |
ESG |
ROA, ROE |
Mixed |
Is sustainability reporting (ESG) associated with performance? Evidence from the European banking sector |
2019 |
Buallay |
Banking |
Europe |
Regression and correlation |
235 |
2007-2015 |
Archived |
Bloomberg |
ESG |
ROA, ROE, Tobin’s Q |
Mixed
|
When Does It Pay to be Good? Moderators and Mediators in the Corporate Sustainability–Corporate Financial Performance Relationship: A Critical Review |
2017 |
Grewatsch and Kleindienst |
Studies |
USA |
|
32 |
|
|
Studies |
Corporate Sustainability |
CFP |
Mixed |
Do ESG Endeavors Assist Firms in Achieving Superior Financial Performance? A Case of 100 Best Corporate Citizens |
2021 |
Qureshi et al. |
Different |
USA |
Regression |
100 |
2009-2018 |
Archived |
3BL Media |
ESG |
ROA, ROE, Tobin’s Q |
Mixed |
The Level of Sustainability Reporting and Its Impact on Firm Performance: The Moderating Role of a Country’s Sustainability Reporting Law |
2020 |
Buallay |
Different |
Global |
Regression |
3,000 |
2008-2017 |
Archived |
Bloomberg |
ESG |
ROA, ROE, Tobin’s Q |
Mixed |
ESG Investing In Nordic Countries: An analysis of the Shareholder view of creating value |
2018 |
Dahlberg and Wiklund |
Different |
The Nordic countries |
Regression |
108 |
2007-2017 |
Archived |
Thomson Reuters database |
ESG |
ROA, Tobin’s Q |
Mixed |
Are CSR Disclosures Value Relevant? Cross-Country Evidence |
2016 |
Cahan, et al. |
Different |
Global |
Regression |
2,170 |
2008 |
Archived |
2008 KPMG Survey, Bloomberg |
CSR |
Tobin’s Q |
Mixed |
Empirical study on relationship between corporate social responsibility and financial performance in Korea |
2016 |
Han et al. |
|
Korea |
Regression |
94 |
2008-2014 |
Archived |
Bloomberg |
ESG |
ROE |
Mixed |
ESG and financial performance: aggregated evidence from more than 2000 empirical studies |
2015 |
Friede et al. |
Studies |
Global |
Correlation |
2,200 |
1970-2014 |
Review study |
Studies |
ESG |
CFP |
Mixed |
ESG Impact on Market Performance of Firms: International Evidence |
2015 |
Sahut and Pasquini-Descomps |
Different |
UK, US and Swiss |
Regression |
618 |
2007-2015 |
Archived |
Thomson Reuters |
ESG |
Market performance |
Mixed |
Between cost and value: Investigating the effects of sustainability reporting on a firm’s performance |
2019 |
Buallay |
Banking |
Global |
regression |
342 |
2007-2016 |
Archived |
SDG Index |
ESG |
ROA, ROE, Tobin’s Q |
Mixed |
Sustainability reporting and performance of MENA banks: is there a trade-off? |
2020 |
Buallay et al. |
Banking |
MENA |
Regression |
59 |
2008-2017 |
|
Bloomberg |
ESG |
ROA, ROE, Tobin’s Q |
Mixed |
ESG Performance and Shareholder Value Creation in the Banking Industry: International Differences |
2019 |
Miralles-Quiros et al. |
Banking |
Global |
|
166 |
2010-2015 |
|
Thomson Reuters |
ESG |
Value creation-Tobin’s Q |
Mix |
A Meta-Analytic Review of Corporate Social Responsibility and Corporate Financial Performance: The Moderating Effect of Contextual Factors |
2016 |
Wang et al. |
studies |
|
Meta-analytic framework |
42 |
2004-2011 |
Archived |
ABI/INFORM database |
CSR |
ROA, ROE, Tobin’s Q |
Mixed |
Dynamics of Environmental and Financial Performance: The Case of Greenhouse Gas Emissions |
2015 |
Delmas et al. |
Different |
USA |
Regression |
1,095 |
2004-2008 |
Archived |
Trucost |
E |
ROA, Tobin’s Q |
Mixed |
The effects of corporate social responsibility on profitability |
2016 |
Lee and Jung |
Manufacturing |
Korea |
OLS regression |
576 |
|
Survey |
Korean manufacturing survey |
CSR |
ROA |
Mixed |
The impact of environmental, social and governance factors on firm performance: Panel study of Malaysian companies |
2018 |
Atan et al. |
|
Malaysia |
Regression |
54 |
2010-2013 |
Archived |
Bloomberg |
ESG |
ROE, Tobin’s Q |
No relationship |
Environmental and social disclosures: Link with corporate financial performance |
2016 |
Qiu et al. |
Different |
Global |
Regression |
629 |
2005-2009 |
Archived |
Thomson Reuters |
E, S |
ROA, ROE, market value |
No relationship |
The relationship between CSR and financial performance |
2015 |
Johansson et al. |
Different |
Sweden |
Regression |
167 |
2006-2009 |
Archived |
Annual reports |
CSR |
ROA, Tobin’s Q |
No relationship |
E, S or G? A study of ESG score and financial performance |
2019 |
Ahlklo and Lind |
|
|
Regression |
267 |
2014-2018 |
Archived |
Nordic stocks and the Sustainalytics ESG rank |
ESG |
ROA, Tobin’s Q |
No relationship |
The Role of Corporate Social Responsibility Disclosure in Improving Financial Performance (Case study in Indonesian Islamic Bank) |
2020 |
Mukhibad et al. |
Banking |
Indonesia |
Panel data regression and Fixed Effect Model |
|
2012-2018 |
Archived |
Annual reports |
CSR |
ROA, ROE |
No relationship |
The Relationship Between Financial Performance, Firm Size, Leverage and Corporate Social Responsibility |
2017 |
Nega |
|
USA |
Regression |
119 |
|
Archived |
Bloomberg |
CSR |
ROE |
No relationship |
The Influence of Corporate Social Responsibility and Corporate Governance on Banking Financial Performance |
2019 |
Mangantar |
Banking |
Indonesia |
Regression |
90 |
2012-2016 |
Archived |
Annual reports |
CSR, CG |
ROA |
No relationship |
Reviewing the Business Case for Corporate Social Responsibility: New Evidence and Analysis |
2011 |
Schreck |
Different |
|
Regression and correlation |
128 |
2006 |
Archived |
Oekom rating |
CSP |
ROE, Tobin’s Q |
No relationship |
The Effects of Environmental Disclosure on Financial Performance in Malaysia |
2016 |
Nor et al. |
|
Malaysia |
Multiple regression analysis |
100 |
2011 |
Archived |
Annual reports |
E |
ROA, ROE |
No relationship |
The Impact of Corporate Social Responsibility on Firms’ Financial Performance in South Africa |
2015 |
Chetty et al. |
|
South Africa |
OLS regression |
42 |
2004-2013 |
Archived |
McGregorBFA database |
CSR |
ROA, ROE |
No relationship |
corporate responsibility and financial performance: the role of intangible resources |
2010 |
Surroca et al. |
|
Global |
Regression |
599 |
2001-2005 |
Archived |
COMPUSTAT Global Vantage |
CSR |
Tobin’s Q |
No relationship |
Environmental, Social and Governance (ESG) Scores and Financial Performance of Multilatinas: Moderating Effects of Geographic International Diversification and Financial Slack |
2019 |
Duque-Grisales, and Aguilera-Caracuel |
Different |
Latin America |
Regression |
104 |
2011-2015 |
Archived |
Thomson Reuters |
ESG |
ROA, ROE, Tobin’s Q |
Negative |
Executive Compensation, Sustainability, Climate, Environmental Concerns, and Company Financial Performance: Evidence from Indonesian Commercial Banks |
2019 |
Kartadjumena and Rodgers |
Banking |
Indonesia |
PLS-SEM |
252 |
2007-2014 |
Archived |
(IDX) website, DataStream |
E |
Tobin’s Q |
Negative |
ESG performance and market value: the moderating role of employee board representation |
2021 |
Nekhili et al. |
|
France |
Regression |
91 |
2007-2017 |
Archived |
Thomson One |
ESG |
Tobin’s Q |
Negative |
a study on relationship between corporate financial performance and environmental social and governance score (ESG score |
2019 |
Amritha and Balasubramanian |
|
India |
Regression |
35 |
2014-2018 |
Archived |
Yahoo Finance and financial data from Prowess IQ |
ESG |
Tobin’s Q |
Negative |
Sustainable Development and Corporate Performance |
2007 |
Lopez et al. |
Homogeneous industry |
Europe |
Regression |
110 firms |
1998-2004 |
Archived |
DJSI, DJGI |
CSR |
ROA, ROE |
Negative |
Environmental disclosure and performance reporting in Malaysia |
2007 |
Smith et al. |
|
Malaysia |
|
40 |
2001 |
|
Annual report |
E |
ROA, ROE |
Negative |
Corporate social responsibility as a conflict between shareholders |
2010 |
Barnea and Rubin |
Different |
USA |
Regression |
2,650 |
|
Archived |
KLD, proxy statements, 13F schedules, CRSP, Com pustat, and Execucomp |
CSR |
firm value |
Negative |
The Value Relevance of Financial and Non-Financial Environmental Reporting |
2009 |
Moneva and Cuellar |
|
Spain |
Regression |
44 |
1996-2004 |
Archived |
IBEX-35 index, annual reports, Compustat Global Data database |
E |
Financial environmental disclosures |
Negative |
ESG scores and its influence on firm performance: Australian evidence |
2012 |
Balatbat et al. |
Different |
Australian |
|
300 |
2008-2010 |
Archived |
Australian Securities Exchange |
ESG |
ROA, ROE |
Weak |
Corporate social reporting: empirical evidence from Indonesia Stock Exchange |
2010 |
Siregar and Bachtiar |
|
Indonesia |
Regression |
87 |
2003 |
Content analysis |
Annual report |
CSR |
ROA, ROE |
Weak |
The revisited contribution of environmental reporting to investors’ valuation of a firm’s earnings: An international perspective |
2007 |
Cormier and Magnan |
different |
Canada, France and Germany |
Regression |
|
|
Archived |
Datastream and annual reports |
E |
Stock market valuation |
Weak |
Market Reactions to the First-Time Issuance of Corporate Sustainability Reports: Evidence that Quality Matters |
2010 |
Guidry and Patten |
different |
USA |
Regression |
37 |
2001-2008 |
Archived |
Academic Universe Lexis-Nexis database |
Sustainability reporting |
Market reaction |
Weak |
Corporate social reporting in European Banks: The effects on a firm’s market value |
2012 |
Carnevale et al. |
Banking |
Europe |
Cross‐country Analysis and regression |
130 |
2002-2008 |
Survey |
Survey |
CSR |
Market value |
Weak |
Appendix IV: Summary of the Articles Related to the Relationship between Compensation and Performance
Title |
Year |
Author(s) |
Industry |
Country |
Tool |
Sample |
Period |
Data collection |
Source, Dataset |
Firm value |
Relationship |
Executive compensation and firm performance: Evidence from Indian firms |
2016 |
Raithatha and Komera |
Different |
India |
Regression |
3100 |
2002-2012 |
Archived |
e PROWESS database |
ROA, ROE, Tobin’s Q |
Positive |
CEO compensation: does it pay to be green? |
2001 |
Stanwick and Stanwick |
Different |
|
Regression |
186 and 188 |
1999 and 1991 |
Archived |
Business ethic magazine |
ROE |
Positive |
Executive Compensation and Firm Performance in New Zealand: The Role of Employee Stock Option Plans |
2021 |
Ding and Chea |
Different |
New Zealand |
Regression |
84 |
|
Archived |
DataStream, Bloomberg, and NZX Company Research |
ROA, ROE, Tobin’s Q |
Positive |
Management Financial Incentives and Firm Performance in a Sustainable Development Framework: Empirical Evidence from European Companies |
2020 |
Noja et al. |
Different |
Europe |
Regression |
1594 |
2019 |
Archived |
Thomson Reuters |
EBITDA, EBIT, EV |
Positive |
Chief Executive Officer and Chief Financial Officer compensation relationship to company performance in state-owned entities |
2017 |
Bussin and Ncube |
Different |
South Africa |
Correlation and multiple regression |
2 |
2010/2014 |
Archived |
Annual reports |
ROA, ROE |
Positive |
Executive remuneration and company performance |
2017 |
Ndlovu
et al. |
Different |
South Africa |
Regression and correlation |
359 |
2010/2015 |
Archived |
McGregor BFA database |
ROA, ROE |
Positive |
Investigating the associations between executive compensation and firm performance: Agency theory or tournament theory |
2018 |
Elsayed and Elbardan |
Different |
UK |
Regression |
1,462 |
2010-2014 |
Archived |
FTSE 350 index |
ROA, Tobin’s Q |
Positive |
Executive compensation and the EVA and MVA performance of South African listed companies |
2013 |
De Wet |
Different |
South Africa |
Regression |
|
2006-2010 |
Archived |
McGregor BFA |
ROA, ROE |
Positive |
CEO Compensation and Corporate Governance in China |
2012 |
Conyon and He |
Different |
China |
Regression |
2,024 |
2005/2006 |
Archived |
GTA |
ROA |
Positive |
CEO compensation and firm performance: Evidence from the US property and liability insurance industry |
2013 |
Sun et al. |
Insurance |
USA |
|
|
2000-2006 |
Archived |
Annual reports |
ROA |
Positive |
The Relation between CEO Compensation and Past Performance |
2012 |
Banker et al. |
Different |
China |
Regression and correlation |
2,498 |
1993-2006 |
Archived |
Compusat ExecuComp |
ROE |
Positive |
The relationship between executive remuneration at financial institutions and economic value added |
2013 |
Van Blerck |
Banking |
USA, South African |
Correlation |
16 |
2002-2011 |
Archived |
Annual reports |
ROA, ROE |
Positive |
Director compensation in emerging markets: A case study of Thailand |
2013 |
Theeravanich |
different |
Thailand |
Regression and correlation |
363 |
2002-2008 |
Archived |
SETSMART |
ROA, Tobin’s Q |
Mixed |
Relationship between CEO remuneration and company financial performance in the South African retail and consumer goods sector |
2015 |
Bussin and Nel |
Retail and consumer goods |
|
Regression and correlation |
30 |
2006-2011 |
Archived |
JSE |
ROE |
Negative |
The relationship between remuneration and financial performance for companies listed on the Johannesburg Stock Exchange |
2018 |
Kirsten and Toit |
Different |
South Africa |
Regression |
42 |
2006-2015 |
Archived |
JSE, INET BFA |
ROA, ROE |
No relationship |
Top management compensation and firm performance—A matter of context? |
2016 |
Lindstrom and Svensson |
Different |
Sweden |
Regression |
900 |
2010-2014 |
Archived |
Retriever Business |
ROA, ROE |
No relationship |
Is the pay–performance relationship always positive? Evidence from the Netherlands |
2007 |
Duffhues and Kabir |
Different |
Netherlands |
|
|
1998-2001 |
|
Annual reports |
ROA and Tobin’s Q |
No relationship |