The moderating effect of corporate governance on the relationship between corporate sustainability performance and corporate financial performance

Corporate governance plays an important role in monitoring and counseling management's decision making including strategic sustainability investing. Understanding the role of corporate governance may help top management of corporations allocate their limited resource in their strategic planning and decision making. This study examines the relationship between corporate governance and corporate sustainability performance (CSP) and whether corporate governance moderates the relationship between corporate sustainability performance and corporate financial performance (CSP-CFP). The study analyzes a sample of 456 top largest U.S. public companies to examine corporate sustainability performance and corporate governance jointly, particularly the moderating effect of corporate governance on CSP-CFP relationship. Lagged variables were used to address the endogeneity issue. Multiple regression methods were used. The results show that firms with stronger corporate governance are more likely to have higher CSP and that corporate governance contributes additional value to firm value. The impact of CSP on CFP is higher for firms with stronger corporate governance (moderating effect). Results are robust after using different regression methods and additional tests.