The Role of Institutional Quality in Shaping Environmental Performance
DOI:
https://doi.org/10.55737/trt/v-v.261Keywords:
Country-Level Governance, Environmental Performance, Foreign Ownership, Panel Data, Sustainability, Random Effects ModelAbstract
This study explores the influence of country-level governance on firms’ environmental performance and examines the moderating role of foreign ownership using balanced panel data analysis of 198 non-financial Pakistani firms over the period 2016-2023. This present study employed a random effects regression model to estimate the direct and interaction effects, with the Hausman test to confirm the suitability of the selected estimator. However, the empirical findings suggest that country-level governance has a statistically significant and positive effect on environmental performance, signifying that at the firm level, country-level factors improve and contribute to stronger environmental outcomes at the firm level. In contrast, foreign ownership exhibits a negative but statistically insignificant direct effect and does not significantly moderate the association between country-level governance and environmental performance. Furthermore, the results of control variables like market capitalization, firm size, and revenue growth are found to be insignificant. These findings indicate that in the Pakistani context, country-level governance indicators promote environmental performance more than foreign ownership structure. Although the explanatory power of the estimated models is modest, with R² values of 0.024, 0.025, and 0.038, indicating limited but meaningful variance explanation. Overall, the results of this study underscore and contribute to the growing literature by providing empirical evidence from an emerging economy and shedding light on the vital role of country-level governance in driving environmental performance, while highlighting the limited role of foreign ownership alone may be insufficient. These findings also offer implications for corporate stakeholders, policymakers, and regulators seeking to strengthen governance and environmental performance towards ESG-related practices.
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