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<p>This research analyses the effect of ESG controversies and ESG performance on firms’ leverage in MENA countries. Although existing literature focusing on developed markets, there was scarce evidence from emerging economies especially in connection with the contribution of the ESG score to financial leverage decisions. Based on panel data for the period 2011–2023 and applying state-of-the-art econometric techniques such as propensity score matching (PSM), two-stage least squares (2SLS), Heckman selection models, and structural equation modeling (SEM), the study control for potential endogeneity and selection effects. The results show that ESG controversies are positively related to leverage, while stronger ESG scores lead to lower levels of leverage. Furthermore, the ESG scores act as a partial mediator on the association between ESG controversies and capital structure, which supports that worsening ESG performance results in financial risk. As the first empirical work to shed light on this mechanism in the MENA region, the findings offer novel institutional insight for corporate finance researchers and have policy implications, as well as providing implications for investors who consider pursuing such strategic interventions with respect to ESG integration when it comes to financial stability of emerging markets.</p>

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ESG scores as a mediating factor between ESG controversies and capital structure decisions: evidence from MENA companies

  • 期刊论文

  • 出版模式：

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  • 发表日期：

    2026年5月17日

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  • Zyad Marashdeh,
  • Mohammad Khataybeh,
  • Ghassan M. Omet

摘要

This research analyses the effect of ESG controversies and ESG performance on firms’ leverage in MENA countries. Although existing literature focusing on developed markets, there was scarce evidence from emerging economies especially in connection with the contribution of the ESG score to financial leverage decisions. Based on panel data for the period 2011–2023 and applying state-of-the-art econometric techniques such as propensity score matching (PSM), two-stage least squares (2SLS), Heckman selection models, and structural equation modeling (SEM), the study control for potential endogeneity and selection effects. The results show that ESG controversies are positively related to leverage, while stronger ESG scores lead to lower levels of leverage. Furthermore, the ESG scores act as a partial mediator on the association between ESG controversies and capital structure, which supports that worsening ESG performance results in financial risk. As the first empirical work to shed light on this mechanism in the MENA region, the findings offer novel institutional insight for corporate finance researchers and have policy implications, as well as providing implications for investors who consider pursuing such strategic interventions with respect to ESG integration when it comes to financial stability of emerging markets.