Are corporate political donors more reckless? Evidence from ESG controversies

Purpose This study investigates the link between corporate political donations and environmental, social, and governance (ESG) controversies to test whether corporate political donors are more reckless in engaging in corporate misconduct. This investigation is further deepened by exploring the corporate governance channels via which corporate political donations exacerbate or mitigate ESG controversies. Design/methodology/approach This study uses a large dataset of non-financial firms from 2002 to 2021. Fixed-effects regression models are employed to analyze the relationship between corporate political donations and ESG controversies. In addition, two-stage least squares (2SLS) and entropy balancing techniques are used to address endogeneity concerns and ensure robust results. Findings The findings reveal that firms making political contributions tend to be more reckless, as they engage in more ESG controversies. Furthermore, firms that make political donations and have more expert directors and diligent boards face fewer ESG controversies. Conversely, political donation-making firms with CEOs who hold dual roles experience more ESG controversies. Our results remain valid after addressing endogeneity concerns and using different variables and samples. Practical implications This study findings suggest several implications for corporate and public governance in maintaining the legitimacy of corporate political donors and mitigating their ESG controversies. Corporate boards should emphasize governance mechanisms such as directors’ expertise and board diligence to ensure ethical and sustainable practices while making political contributions. In addition, policymakers and regulators should consider designing effective corporate governance frameworks to enhance transparency and accountability and to mitigate ESG controversies. Originality/value To the best of the authors’ knowledge, this study is the first to explore the relationship between corporate political donations and ESG controversies in an international context. In addition, it is the first to examine the moderating role of expert directors, CEO duality and board diligence in this relationship. The research contributes to further understanding of corporate misconduct and governance effectiveness.