Corruption at country and corporate levels: impacts on environmental, social and governance (ESG) performance of Chinese listed firms
| Date | 05 September 2023 |
| Pages | 559-578 |
| DOI | https://doi.org/10.1108/JMLC-06-2023-0102 |
| Published date | 05 September 2023 |
| Subject Matter | Accounting & finance,Financial risk/company failure,Financial compliance/regulation,Financial crime |
| Author | Haitian Wei,Rasidah Mohd-Rashid,Chai-Aun Ooi |
Corruption at country and
corporate levels: impacts on
environmental, social and
governance (ESG) performance of
Chinese listed firms
Haitian Wei
School of Economics, Finance and Banking, Universiti Utara Malaysia,
Sintok, Malaysia, and
Rasidah Mohd-Rashid and Chai-Aun Ooi
Economic and Financial Policy Institute, School of Economics,
Finance and Banking, Universiti Utara Malaysia, Sintok, Malaysia
Abstract
Purpose –As a consequence of the proposal of the Carbon Neutral and Carbon Peak policy in 2020, the
Chinese Government is paying moreattention to developing sustainability performance. Thisstudy aims to
assess the direct influence of country-level and corporateanti-corruption measures on environmental, social
and governance(ESG) and its three dimensions, besides ascertainingthe moderating role of firm size.
Design/methodology/approach –This study used the system generalized method of moments on a
sample of 820 Chineselisted firms from 2012 to 2021.
Findings –The findings show that country-level and corporate corruption negatively affect ESG
performance. Corporate anti-corruption measures have a more pronounced positive influence on the
sustainabilityperformance of small firms than large firms due to the limited resources,lower political position
and weaker refusalpower of small firms.
Research limitations/implications –The study has great implications for governments, corporate
boards and ESG rating agencies.Government and corporate boards should mitigate the risks of country-level
and corporate corruption toattain sustainable development goals. Rating agencies shouldadd country-level
and corporatecorruption into the ESG evaluation system.
Originality/value –Some empirical results have proven that anti-corruption measures help reduce the
emission of carbon dioxide, but few evidenceshows how country-level and corporate corruption affect ESG
and its three dimensions.
Keywords ESG, Sustainable performance, Corruption perception index, Corporate corruption
Paper type Research paper
1. Introduction
According to the goals of the Carbon Peak and Carbon Neutrality policy in China, carbon
dioxide emission should reachits peak before 2030, and the carbon dioxide absorption from
the atmosphere should balance its emissionbefore 2060 (Liu et al.,2022). Under the context
of pursuing sustainability development, the concept of environmental, social and
governance (ESG) has been introduced to guide firms’development. As the Chinese
Government gradually realizes the importance of ESG disclosure, increasingly listed firms
attach attention to sustainability disclosure. For example, the Guidance on Self-Regulation
Corruption at
country and
corporate
levels
559
Journalof Money Laundering
Control
Vol.27 No. 3, 2024
pp. 559-578
© Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-06-2023-0102
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1368-5201.htm
of Listed Companies of Shanghai Stock Exchange No. 9 –Evaluation of Information
Disclosure reveals that voluntary disclosure of environment, social, and governance is
encouraged and specifies that companies which report information on environment, social,
and governance can gain higher scores in the Scoring Scale of listed firms’disclosures
(Shanghai Stock Exchange,2022).
Moreover, since 2012, the ChineseGovernment has initiated extensive and rigorous anti-
corruption campaigns. Scholarshave highlighted the benefits of fighting against corruption
at the macro level for sustainable development. For example, the level of corruption was
found to negatively affect the information asymmetry and the future increase in ESG
disclosure (Yu and Van Luu, 2021;Bermpei et al.,2021;Khalid et al.,2022). Anti-corruption
activities in China strengthened the intensity of environmental regulation, forcing firms to
reduce the emission of carbon dioxide (Zhou et al.,2020). However, few scholars have
studied how corruption affects corporate ESG performance at the micro level. Thus, this
study tries to fill the gapsin this area.
First, we emphasize that country-level corruption negatively influences the ESG
performance of listed firms. In highly corrupt regions, firms show lower corporate social
responsibility (CSR) performance and are likely to escape corporate social regulation
because corruption costs are lower and corporate intentions to participate in sustainable
development are less reliable (Ucar and Staer, 2020;Wu and Chen, 2022). Developing
countries face more severe corruption and environmental problems because of lower
governance quality. Some multinational firms made bribery payments to transfer their
polluting industry to Africa (Leal and Marques, 2021). Nonetheless, in developing countries
like China and Ukraine, thereis evidence supporting the role of anti-corruption campaigns in
helping to reduce the emission of carbon dioxide by strengthening the environmental
regulation intensity and constructing more transparent mechanisms (Vasylieva et al., 2019;
Zhou et al.,2020). In less corrupt countries, corporations find it hard to evade regulations
from environmental protection divisions and product inspection departments via bribery
payments, and those funds could be efficiently used to increase investments in
environmental and social activities.Hence, we argue that the government could improve the
overall corporateESG performance via extensive anti-corruption activities.
Second, we expect corporate anti-corruption measures to have a positive influence on
ESG scores. A highly corruptculture in a firm easily generates more firm-level misconduct,
and the agents might become more selfish and immoral, thus increasing the agency cost
between management and shareholders (Liu, 2016;Haqq and Budiwitjaksono, 2019;Tran,
2020). In China, bonuses are awarded based on profitability performance. Hence, agents are
more likely to increase the expenditures on business expansion rather than on ESG
activities, thereby hurting the sustainable development of corporations. This scenario goes
against agency theory, which states that nonfinancial disclosure increases information
transparency and reducesagency costs. Moreover, China is characterized by a policy-driven
economy. Thus, in lower corruption level of corporations, managers are more capable of
reducing policy risks and satisfyingthe needs of stakeholders on ESG activities.
Besides, firms of different sizes have different reactions to the effects of corporate anti-
corruption measures on ESG performance. Larger firms are less exposed to corruptionrisks
because they have the advantages of sufficient tangible and intangible resources, higher
political positions and stronger refusal power (Schiffer and Weder, 2001;Chollet and
Sandwidi, 2018;Nguyen,2020;Shakil, 2022). Moreover, large firms have higher inertia force
and are distracted by endless administrativeand commercial tasks (Gong et al., 2013;Li and
Chen, 2018), causing them to ignore the strict implementation of anti-corruption measures.
However, large firms are more effective in implementing CSR strategies due to the sound
JMLC
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