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

• Published date: 01 October 2023
• Author: Kwok Yip Cheung,Chung Yee Lai
• Date: 01 October 2023
• DOI: http://doi.org/10.1002/jcaf.22644

Received: 22 February2023 Accepted: 24 May 2023

DOI: 10.1002/jcaf.22644

RESEARCH ARTICLE

The impacts of business ethics and diversity on ESG

disclosure: Evidence from Hong Kong

Kwok Yip Cheung1Chung Yee Lai2

1Department of Accounting, The Hong

Kong University of Science and

Technology, Clear WaterBay, Hong Kong

2Lee Shau Kee School of Business and

Administration, Hong Kong Metropolitan

University, Homantin, Hong Kong

Correspondence

Kwok Yip Cheung, The Hong Kong

University of Science and Technology,

Clear Water Bay,Hong Kong.

Email: acstcheung@ust.hk

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 diver-

sity is critical for improving social performance and business ethics is essential

for improving environmental and social performance. However, audit commit-

tee 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.

KEYWORDS

audit committee experience diversity, board cultural diversity, business ethics, ESG score

1 INTRODUCTION

Topics related to environment, social, and governance

(ESG) have become a major concern of the organizations’

boards, management, customers, investors, and other

stakeholders (Atkins, 2018; Hoang, 2018; Sajjad et al., 2020;

Shaikh, 2022). Stakeholders have increasing expectations

of organizations’ initiatives and commitment to execut-

ing ESG policies in their daily practices. To ensure that

their businesses are operating in an ethical and sustainable

manner, organizations have been putting much empha-

sis on improving their business models and sustainability

reporting systems (Steger et al., 2007).

The significance of corporate governance highly relates

to an organization’s contribution and responsibility to

society (Kocmanova & Docekalova, 2012). Corporate gov-

ernance serves as an important role to help achieve

a balance among social, economic, and environmental

issues (Ying et al., 2021). The structures of corporate gov-

ernance, consisting of audit committee members and the

board of directors, are intentionally established to moni-

tor and control the organizational decisions and behaviors

which meet the expectations of different stakeholders. The

board of directors has the responsibilities to ensure proper

disclosure, oversee the actions taken by the management

and make sure that stakeholders can fulfill their needs

(Cheung & Lai, 2022). Appuhami and Tashakor (2017)

report that board members who are independent, diligent,

knowledgeable, and experienced can properly discharge

their duties to drive the management toward transparency,

integrity, and disclosure. On the other hand, the audit

committee has the responsibility to ensure the accuracy of

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