Board of Directors Network Centrality and Environmental, Social and Governance (ESG) Performance

37 Pages Posted: 10 Jun 2020

See all articles by Maretno A. Harjoto

Maretno A. Harjoto

Pepperdine University - Pepperdine Graziadio Business School (PGBS)

Yan Wang

Nottingham Business School

Date Written: May 12, 2020

Abstract

Drawing from social capital, social network theory of stakeholder influence, and stakeholder management, this study examines the relationship between board network centrality and firms’ environmental, social and governance (ESG) performance. Using social network analysis, we construct five board network centrality, namely degree centrality (the number of connections), closeness centrality (distance among firms), eigenvector centrality (the quality of connections), betweenness centrality (how often a firm sits between two other firms), and the information centrality (the speed and reliability of information), as measures of board access for social capital and timely information. Using a sample of non-financial firms listed in the UK FTSE 350 index from 2007 to 2018, we find that board networks, measured by degree, closeness, eigenvector, betweenness, and information centrality, have positive influence on firms’ environmental, social and governance (ESG) performance. Furthermore, our findings show that there is a non-linear relationship between board networks and ESG performance and this relationship is stronger in the sectors where firms that have high product market concentration and high percentage of women board members.This study unveils that strong board network centrality brings higher social (reputational) capital and information advantages to the firm to effectively, timely, and accurately deal with the pressures from stakeholders (stakeholder management), which leads to better environmental, social, and governance (ESG) performance.

Keywords: Board network centrality, social network analysis, stakeholder management, ESG performance, non-linear

JEL Classification: M14, L14, G3

Suggested Citation

Harjoto, Maretno Agus and Wang, Yan, Board of Directors Network Centrality and Environmental, Social and Governance (ESG) Performance (May 12, 2020). Corporate Governance: An International Journal of Business in Society [2020 Forthcoming], Available at SSRN: https://ssrn.com/abstract=3600536

Maretno Agus Harjoto (Contact Author)

Pepperdine University - Pepperdine Graziadio Business School (PGBS) ( email )

Drescher Campus Suite 344
24255 Pacific Coast Highway
Malibu, CA 90263
United States
(310) 506-8542 (Phone)
(310) 506-4126 (Fax)

HOME PAGE: http://scholar.google.com/citations?hl=en&user=9-PfQi0AAAAJ

Yan Wang

Nottingham Business School ( email )

Nottingham
United Kingdom
+44 (0)115 848 8278 (Phone)

HOME PAGE: http://https://www.ntu.ac.uk/staff-profiles/business/yan-wang

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