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The study investigates the impact of environment, social and governance (ESG) controversies on firm performance in India. Utilizing a sample of 1,024 firm-year observations of Indian firms from 2007 to 2018, the study reports that ESG controversies reduce firm performance. Further, after introducing the interaction effect of government effectiveness, the ESG controversies maintain a similar negative influence on performance. Additionally, the interaction effect of government effectiveness and ESG controversies negatively affects performance in response to ESG controversies. The study conducts a sample-split analysis that indicates the moderation effect of government effectiveness is significantly negative only in the post-CSR mandate period. This study is novel in analysing insights on government effectiveness moderation impact on firm performance in response to ESG controversies.
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Mendiratta et al. (2023) studied this question.
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