Corporate environmental, social and governance (ESG) scores and corporate liquidity management (CLM): evidence from Australia

Abstract

Purpose This study aims to investigate the impact of environmental, social and governance (ESG) scores on corporate liquidity management (CLM) in Australian Securities Exchange (ASX)-listed companies for the 2010–2023 period. Design/methodology/approach Using various measures in addition to ESG scores and CLM, such as net working capital (NWC), the cash conversion cycle (CCC) and operating cash flow (OCF), and by using 1,100 firm-year observations, this study uses ordinary least squares (OLS) regression to examine the ESG scores–CLM relationship. The study employs robust econometric models to address sample selection bias, endogeneity and heterogeneity, ensuring reliable results. Findings The study’s findings are that higher ESG scores are positively associated with higher NWC, reflecting improved CLM. Furthermore, ESG scores are negatively related to OCF and the CCC, demonstrating that firms with strong ESG practices efficiently convert resources into cash flow. Practical implications This study highlights the importance of integrating ESG practices with CLM strategies to enhance financial and capital stability. Originality/value This study contributes to the literature and provides a new avenue of knowledge on ESG performance and CLM.