Open AccessAn empirical study of the relationship between the busy outside directors and indicators of ESG performance
Author(s) -
Amara Tijani,
Ali Ahmadi
Publication year - 2022
Publication title -
decision science letters
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.384
H-Index - 18
eISSN - 1929-5804
pISSN - 1929-5812
DOI - 10.5267/j.dsl.2022.2.001
Subject(s) - corporate governance , business , accounting , sustainability , sample (material) , panel data , empirical research , marketing , finance , economics , ecology , philosophy , chemistry , chromatography , epistemology , econometrics , biology
In this article, we analyse whether the management structure of a company plays a role in the sustainability of companies. More specifically, we study the impact of occupied outside directors, outside directors sitting on several boards of directors, on the environmental, social and governance (ESG) performance of the company. We collect information about board characteristics, information about the board and management from MSCI ESG Research and financial information from Compustat. The study collects data based on panel data, which ranges from 2014 to 2020. The final sample consists of 550 US companies over a five-year period and contains 3850 firm-year observations. The study finds a positive relationship between busy outside directors and ESG performance. Busy outside directors have a positive impact not only on the overall ESG score, but also on individual ESG components. The environmental score is most affected by busy external directors, while the governance score appears to be little affected. Contrary to the theory that busy outside directors are overly engaged and degrade the fixed value, the findings support the theory that busy outside directors improve a company's sustainability performance because of their engagement, experience and the ESG performance.