Where does ESG pay? The role of national culture in moderating the relationship between ESG performance and financial performance

This study investigates the moderating role of a country's culture as an external contingency factor in the relationship between a firm's environmental, social, and governance (ESG) performance and financial performance. Using ESG performance data of 4978 firms from 48 countries for 17 years, we argue that the financial return from engaging in ESG varies depending on the countries’ cultural aspects because stakeholder evaluations and appreciations for a firm's ESG performance differ across nations. We find that a country that espouses a culture of high individualism or masculinity tends to appreciate and reflect on this more explicitly, strengthening the relationship between a firm's ESG performance and financial performance. Contrastingly, in a country with a culture of high power distance or uncertainty avoidance, firms’ ESG efforts are less likely to be associated with financial performance. Our findings have important implications for multinational enterprises facing various cultural environments when dealing with heterogeneous stakeholder demands across countries.