Corporate Governance, ESG Performance, and Investment Decision: A Study from a Developing Economy

This study explores how corporate governance influences capital investment decisions in Pakistan's banking sector, with a particular focus on whether Environmental, Social, and Governance (ESG) performance moderates this relationship. Grounded in stakeholder and legitimacy theories, the research compiles a balanced panel of 25 commercial banks from 2015 to 2024. This research integrates corporate governance mechanisms, ESG performance, and control variables such as firm size, debt ratio, and cash holdings to analyze their impact on capital expenditures. This study concludes that while corporate governance alone can restrict unnecessary investments, the inclusion of ESG performance enables firms to make more socially responsible and profitable investment decisions. These findings have significant implications for banks, regulators, and investors, offering a framework for incorporating both governance and sustainability into long-term investment strategies.