The impacts of business ethics and diversity on ESG disclosure: Evidence from Hong Kong

Abstract

This paper investigates the effects of board cultural diversity, audit committee experience diversity as well as business ethics on the effectiveness of oversight quality on ESG performance. Using Generalized Moments of Methods (GMM), we examine the ESG performance of the firms listed in the Hong Kong Hang Seng Composite Index between 2010 and 2015. We find that board cultural diversity and business ethics have positive correlations with ESG performance while audit committee experience diversity has a negative correlation with ESG performance. In our additional analysis, we observe that board cultural diversity is critical for improving social performance and business ethics is essential for improving environmental and social performance. However, audit committee experience diversity limits firm performance in three areas (environmental, social, and governance) of ESG performance. This is the first study that provides insights to both policymakers and practitioners by highlighting the importance of optimizing the levels of diversity and mandating the improvement of business ethics.