Corporate Governance and ESG Controversies: A Quantile Regression Approach: Evidence from Pakistan

Abstract

This paper investigates the connection among the corporate governance attributes, ESG controversies, and firm value within the framework of non-financial companies quoted on Pakistan Stock Exchange (PSX) during the period 2017-2023. The study examines the extent to which corporate governance mechanisms have different impacts on firm value across the conditional distribution of Tobin's Q, and moderates the relationship between firm value and corporate governance mechanisms, using a panel data quantile regression approach. The results indicate that the board independence, audit committee size and female director representation positively and significantly affect firm value and the effect of these increases monotonically across the quantiles. On the other hand, CEO duality and ESG controversies have consistently negative effects on firm value, and the negative effects of ESG controversies becomes stronger at higher quantiles. The quantile regression technique reveals heterogeneity which is masked by the use of the traditional OLS regression and shows that governance mechanisms have a more impactful effect on high-value firms. The study has empirical evidence of an under-researched context of an emerging market and policy implications for the Securities and Exchange Commission of Pakistan for governance codes reforms and ESG disclosure requirements for the Pakistan Stock Exchange (PSX).