The relationship between corporate social responsibility and financial performance and the moderating role of corporate governance pre, during and post COVID-19

Abstract

Purpose: The objective of this study is to analyse the effect of ESG reporting as a comprehensive one-all report on profitability (ROA) and on market valuation (MTB). We also analyse this relationship using separated reporting, Environmental reporting and social reporting. Then, we introduced to our models the moderating effect of the board independence. Design/methodology/approach: Our sample consists of 128 European companies including 3 periods 2010-2019 pre-COVID period, 2020-2021 during COVID period and finally 2022-2024 post COVID period. We run three separated GLS regression. Findings: the results show that before the pandemic, companies and the market did not have concise ESG, environmental, and social reporting, but board independence improves ESG initiatives quality and stockholders, market and stakeholders trust, which boosts profitability and market valuation, we also find that companies learned that ESG, environmental , and social reporting boosts profits during the pandemic, however the market ignored ESG, environmental, and social reporting. After the pandemic, companies seek long term sustainability to improve profits. Market value integrated ESG reporting not social and environmental reporting, also the findings show that board independence hurts ESG, environmental, and social reporting effect on profitability and market valuation. Originality: From the practical perspective, policy makers/regulators may take advantage of this research by considering a mandatory ESG reporting or strengthening voluntary ESG disclosure practice. In addition, it also underscores the adequacy of the market brief with respect to board independence in enhancing ESG activities, fostering societal trust and ultimately stimulating superior corporate performance.