The role of foreign directors from positive peace culture in advancing environmental, social and governance (ESG) performance: evidence from China
Edwin KiaYang Lim, Kun Luo, Dessalegn Mihret, Christina Shuet Wong-Lim, Xuan ZhangPurpose
This study investigates whether foreign directors from positive peace cultures enhance a firm’s environmental, social and governance (ESG) performance. Grounded in Social Learning Theory, we argue that such directors facilitate the diffusion of ethical values and sustainable governance practices in boardrooms.
Design/methodology/approach
Using a sample of 26,744 firm-year observations of Chinese firms listed on the Shanghai and Shenzhen stock exchanges from 2009 to 2024, we construct a novel board-level Positive Peace Index (PPI) based on the PPI scores of foreign directors’ countries of origin obtained from the Institute for Economics and Peace (IEP). We then estimate a lead-lag OLS model, regressing ESG performance, measured using the Huazheng ESG composite score, on PPI alongside relevant control variables.
Findings
Firms with foreign directors from stronger positive peace cultures (i.e. a higher average of positive peace level on the board) demonstrate superior ESG performance, particularly in product quality, corporate governance, and environmental protection. The positive effect of PPI is more pronounced in firms with less government intervention, lower CEO power, and more frequent board meetings, reflecting conditions that foster open dialog and social learning. Importantly, PPI provides explanatory power beyond Hofstede’s cultural dimensions and generic board diversity measures.
Originality/value
This study introduces positive peace culture as a novel, values-based lens for examining the cultural influence of foreign directors on ESG, addressing prior mixed findings in the literature. By moving beyond Hofstede’s framework, we respond to calls for more nuanced, context-sensitive cultural metrics (Chanchani and MacGregor, 1999; Doupnik and Tsakumis, 2004). Our findings carry practical implications for firms, investors, and policymakers in emerging markets, advocating for thoughtful board composition strategies that prioritize cultural values such as positive peace that are aligned with ethical and sustainable business practices.