Relationship between Corporate Governance, Corporate Sustainability and Financial Performance

Abstract

This study aims to investigate three crucial questions. First, whether the corporate governance and corporate sustainability leads to improved firm financial performance or not? Second, whether the sound corporate governance practices improve firm sustainable performance or not? Third, whether the corporate sustainability mediates the relationship between corporate governance and firm performance or not? We used the sample 425 firms listed on Australian Securities Exchange (ASX). Using structural equation modeling approach, we find that corporate governance is positively linked to corporate sustainability performance, and corporate sustainability performance leads to improved financial performance. We also find that corporate sustainability performance mediates the link between corporate governance and financial performance. These findings are important for two aspects. The first is for firms’ management, the regulators, policymakers in promoting corporate governance and corporate sustainability practices. Second, our study provides empirical support to current policy debate that investing in good governance and better sustainability practices is vital for long-term value creation.

Keywords

• sustainability performance
• financial performance
• corporate governance
• asx
• australia