The effects of legal origin and corporate governance on financial firms’ sustainability performance

This paper examines the determinants of sustainability performance in the financial industry at the firm, country and legal origin levels. Through the analysis of the ESG score in a sample of 64 countries with 982 financial firms during the period between 2002 and 2018, we find that legal origin is a significant explanatory variable. In particular, our findings indicate that companies based in civil-law countries show higher values of ESG performance than their counterparts in commonlaw countries, suggesting the prevalence of the stakeholder theory in explaining the willingness of financial firms to engage in sustainability practices. Moreover, and following the assumptions of the “good governance” view, we also assess the joint the effect of corporate governance and legal origin ESG scores, finding that corporate governance structures emerge as a substitution mechanism of sustainability enhancement for financial firms based in common-law countries.