SUSTAINABILITY REPORTING, GREEN FINANCE, AND GOVERNANCE QUALITY ON FINANCIAL PERFORMANCE: A MEDIATION ANALYSIS APPROACH

Abstract

The aim of the study is to examine how sustainability reporting, green finance, and quality of governance affect the financial performance of developing economies using digital transformation as a mediating variable. The study makes use of Ordinary Least Squares (OLS), Fixed Effects (FE), Random Effects (RE) and Panel-Corrected Standard Errors (PCSE) estimation models to craft a robust study by employing a balanced panel dataset of 44 developing economies in 6 geographic regions (2015-2024). Sustainability reporting has adjusted net savings percentage of GNI as a proxy, renewable energy consumption as a proxy of green finance, government effectiveness as a proxy of governance quality and internet penetration as a proxy of digital transformation and GDP per capita growth as a financial performance, respectively. The result of Hausman tests proves the suitability of the specification of fixed effects. Empirical evidence indicates that the three independent variables, which include sustainability reporting, green finance and governance quality all have a major positive impact on financial performance. More significantly, these relationships are influenced partly by digital transformation which increases the transfer of sustainability and governance benefits to economic growth outcomes. The research adds new panel evidence to the literature on sustainability-finance nexus and has significant policy implications to the developing world that aims at advancing the integrated sustainability and digital nexus.

JEL Classification: Q01; Q56; G10; O43; C23