Do audit committee characteristics moderate the relationship between ESG and financial performance? Cross-country analysis

This study has a dual focus: first, to evaluate how audit committee characteristics moderate the relationship between ESG and financial performance; second, to investigate this moderation within low and high-power distance cultures. Data were collected from twelve culturally diverse countries: Austria, China, Greece, India, Indonesia, New Zealand, Japan, Malaysia, Singapore, the United Kingdom, Sweden, and the United States of America. Based on a dataset of 20,336 observations from 5084 distinct companies across countries during 2019–2022, panel analysis confirmed our hypotheses. Our analysis included both direct and moderating effect models. We found that audit expertise and independence moderate the relationship between ESG and financial performance. Notably, this moderation effect was evident in both high and low power distance cultures, suggesting that the interaction between ESG and audit characteristics can enhance corporate financial performance irrespective of cultural norms. Without audit committee insights, the detrimental effect of power distance on the ESG-financial performance became evident. These results hold significant practical and theoretical implications for policymakers, internal stakeholders, academics, and investors striving to balance sustainability with financial outcomes. They demonstrate the importance of audit members' expertise and independence in fostering sustainable organisational practices, potentially guiding future policy decisions and investment strategies.