Kurdish Studies

ISSN: 2051-4883 | e-ISSN: 2051-4891

Utilizing ESG Communication Strategies to Augment Capital Expenditure in Financially Constrained Firms

Ritab Al-Khouri
College of Business, Department of Financial Technology. Al Ahliyya Amman University.
Fayez Haddad
Dean of the College of Business, Alahliyya Amman University. Jordan University, College of Business. Department of Finance
Ala Al-Horani
College of Business, Department of Financial Technology. Al Ahliyya Amman University
Keywords: ESG, Financial contraints, capital expenditure, London Stock Exchange, GMM.

Abstract

Purpose - The aim of this research is to examine how Environmental, Social, and Governance (ESG) components influence capital expenditure in financially constrained firms. The study utilizes a sample of 142 firms listed on the London Stock Exchange spanning the period from 2012 to 2021. Design/methodology/approach - This study explores the association between Environmental, Social, and Governance (ESG) metrics and capital expenditures, focusing on financially constrained firms. The research employs the Generalized Method of Moments (GMM) as the methodical approach. The initial step involves explaining the variables and subsequently specifying the model. The dependent variable in the analysis is the capital expenditure of the firm, while the independent variables encompass ESG disclosure, and the financial constraint of the firm measured through the Whited-Wu index. Findings - The study revealed a positive influence of Environmental, Social, and Governance (ESG) scores on the association between financial constraints and capital expenditures within the examined sample. These findings highlight the substantial advantages of integrating ESG considerations into firms' strategic decision-making processes. Such integration enhances resilience.  This is particularly evident in increased capital expenditures during periods of financial constraints. This underscores the strategic importance of ESG factors in protecting firms against financial challenges while positively impacting their operational decisions. Research limitations/implications - The study's findings are specific to a certain group of companies (142 firms listed on the London Stock Exchange from 2012 to 2021). Therefore, these results cannot be generalized to other markets.  In addition, the study uses ESG data from Datastream, but different providers use varying specifications for ESG information. This lack of standardization in ESG data could affect the study's results since scores may differ between companies when assessed by different data providers. Originality/value – This study makes a meaningful contribution to the growing body of literature exploring the connection between sustainability and financial performance. It adds value by examining the impact of Environmental, Social, and Governance (ESG) factors and financial constraints on the capital expenditure of 142 UK firms from 2012 to 2021. This research enhances our understanding of how ESG considerations and financial constraints jointly impact firms' strategic financial decisions.  To the best of the researchers' knowledge, no existing literature directly addresses the specific impact arising from the interaction between financially constrained firms and their capital expenditure. This gap underscores the unique focus and contribution of our study in exploring this uncharted area within the scholarly domain.

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