Good Governanceand Sustainable Investment: TheEffects of Governance Indicators on Stock Market Returns

Abstract

Purpose:This research studies the impacts ofthe six WorldwideGovernance Indicators (WGI) onsustainable investmentreturnsin the Asian region. Design/methodology/approach:This researchuses theWGI data as proxied of good governance and employs The Fixed Effect Model (FEM) and Random Effect Model (REM) on the panel data from the sustainable stock market returns ofsixAsian countries to examine the relationship among variables.Further, the Feasible GeneralizedLeast Squares (FGLS) Regression panel regressionwas conductedto achieve robust findings. Findings:Our empirical analysis found that political stability and absence of violence (PSA) and regulatory quality (REQ) positively influencesustainable investment returns in the Asian region. While control of corruption (COC) exhibits a significant negativeimpact on sustainable investment returns. These findings imply that more excellentpolitical stability and reasonable regulationscontributeto higher stock market returns. Conversely, contradictory with the Control of Corruption leads to downward stock market returns as the growth of the COC index increases. Research limitations/implications:This research has several limitations, includingthe lack of comprehensive sustainable stock market data in the Asian region and a short transaction period. Consequently, future research could categorize the market as developed or emerging,classify the sample based on the efficient market category, expand the sample size and include data from outside the Asian region. Practical implications:This research has several crucial policy implications for sustainable investorsconcerning the country-levelgovernance indexto createprofitable and sustainable portfolio strategies.Moreover, policymakersshouldstrengthen the implementationof anti-corruption to increase the sustainable investors in the Asian region. Originality/value:This research contributes to the recentliterature presenting causal relations of quality country-level governance on sustainable investment returns intheAsian region.