Good Governance and Sustainable Investment: The Effects of Governance Indicators on Stock Market Returns

Susilo Nur Aji Cokro Darsono; Wing-Keung Wong; Tran Thai Ha Nguyen; Hafsah Fajar Jati; Diah Setyawati Dewanti

doi:10.47654/v26y2022i1p69-101

Authors

Susilo Nur Aji Cokro Darsono Universitas Muhammadiyah Yogyakarta Corresponding Author
Wing-Keung Wong Asia University Taiwan Author
Tran Thai Ha Nguyen Saigon University, Vietnam Author
Hafsah Fajar Jati Universitas Muhammadiyah Yogyakarta Author
Diah Setyawati Dewanti Universitas Muhammadiyah Yogyakarta Author

DOI:

https://doi.org/10.47654/v26y2022i1p69-101

Keywords:

Sustainable Investment, Market Returns, World Governance Indicators, Asian Market

Abstract

Purpose: This research studies the impacts of the six Worldwide Governance Indicators (WGI) on sustainable investment returns in the Asian region.

Design/methodology/approach: This research uses the WGI data as proxied of good governance and employs The Fixed Effect Model (FEM) and Random Effect Model (REM) on the panel data from the sustainable stock market returns of six Asian countries to examine the relationship among variables. Further, the Feasible Generalized Least Squares (FGLS) Regression panel regression was conducted to achieve robust findings.

Findings: Our empirical analysis found that political stability and absence of violence (PSA) and regulatory quality (REQ) positively influence sustainable investment returns in the Asian region. While control of corruption (COC) exhibits a significant negative impact on sustainable investment returns. These findings imply that more excellent political stability and reasonable regulations contribute to higher stock market returns. Conversely, contradictory with the Control of Corruption leads to downward stock market returns as the growth of the COC index increases.

Research limitations/implications: This research has several limitations, including the lack of comprehensive sustainable stock market data in the Asian region and a short transaction period. Consequently, future research could categorize the market as developed or emerging, classify the sample based on the efficient market category, expand the sample size and include data from outside the Asian region.

Practical implications: This research has several crucial policy implications for sustainable investors concerning the country-level governance index to create profitable and sustainable portfolio strategies. Moreover, policymakers should strengthen the implementation of anti-corruption to increase the sustainable investors in the Asian region.

Originality/value: This research contributes to the recent literature presenting causal relations of quality country-level governance on sustainable investment returns in the Asian region.

JEL Classifications: C33; E44; G15; O16

Keywords: Sustainable Investment; Market Returns; World Governance Indicators; Asian Market; FGLS

Paper Type: Research Article

Author Biographies

Wing-Keung Wong, Asia University Taiwan

³Department of Finance, Fintech Center, and Big Data Research Center, Asia University

⁴Department of Medical Research, China Medical University Hospital, Taiwan

⁵Department of Economics and Finance, The Hang Seng University of Hong Kong, Hongkong
Tran Thai Ha Nguyen, Saigon University, Vietnam

¹Department of Business Administration, College of Management, Asia University, Taichung, Taiwan
⁶Faculty of Finance and Accounting, Saigon University, Ho Chi Minh City, Vietnam
Hafsah Fajar Jati, Universitas Muhammadiyah Yogyakarta

²Department of Economics, Faculty of Economics and Business, Universitas Muhammadiyah Yogyakarta, Yogyakarta, Indonesia
Diah Setyawati Dewanti, Universitas Muhammadiyah Yogyakarta

²Department of Economics, Faculty of Economics and Business, Universitas Muhammadiyah Yogyakarta, Yogyakarta, Indonesia

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