The influence of ESG performance on corporate financial misconduct: the fraud triangle theory
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2025-07-04
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en
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This research investigates the relationship between ESG performance and financial corporate misconduct in the US, using a dataset with 242 unique US-based companies from 2010 till 2020. A two-way fixed effect difference-in-differences (TWFEDD) regression is employed to analyze the relationship between ESG performance and corporate financial misconduct. For the TWFEDD regression, the scandal of Volkswagen in 2015 is chosen as the event, due to the increase of misconduct awareness and scrutinization, which should lower perceived opportunities and rationalization for committing fraud. In this regression, high ESG firms act as the treated group due to the higher media focus, which channels the increased pressure to mostly high ESG firms. The results indicate that high ESG firms before the Volkswagen scandal are significantly negatively correlated with corporate financial misconduct when compared to low ESG firms, as expected by the theory. But after the event, high ESG firms are significantly correlated with a lower decrease in corporate misconduct compared to low ESG firms, contradicting existing research. After further robustness tests using a propensity score matched and instrumental variable regression, it shows that both results are robust. Using different regression techniques and independent measures shows only robust results for the post-Volkswagen event result.
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Faculteit der Managementwetenschappen