The Role of Corporate Governance in Shaping Sustainable Practices and Economic Outcomes in Small- and Medium-Sized Farms

To integrate rapidly growing environmental, social, and governance (ESG) investments into agribusiness, it is essential to understand the decision-making mechanisms behind sustainable practices in small- and medium-sized farms. This study examines the role of corporate governance in promoting sustainable practices using structural equation modeling on survey data from 1111 Japanese farms. The results reveal that internal social sustainability practices, such as improving the work environment and employee well-being, are positively associated with corporate governance and, in turn, significantly enhance sales growth, cash flow, and succession prospects. In contrast, external social sustainability practices show a negative correlation with governance, reflecting the influence of socioemotional wealth and reputation-driven decision-making. Environmental sustainability practices correlate only with sustainable corporate governance, suggesting a lack of strategic integration. These findings underscore the importance of corporate governance as a factor in linking sustainable initiatives to economic outcome. Strengthening internal social sustainability through robust corporate governance is therefore critical for farmers aiming to improve performance through sustainability. Moreover, given that family management preferences shape sustainability choices, policymakers must consider both governance and socioemotional factors to effectively support agricultural sustainability.