Volume 26 Issue 2 Article 1 June 2024 The Relationship between Culture, Sustainable Use of Resources, The Relationship between Culture, Sustainable Use of Resources, and Financial Performance: An Institutional and Natural-Resource- and Financial Performance: An Institutional and Natural-Resource- Based Perspective Based Perspective Deon H. Engelke Rhodes University, Makhanda, South Africa and IEE Varsity College, Gqeberha, South Africa, deon@inkanyezi.co.za Noel J. Pearse Rhodes University, Makhanda, South Africa Fabio M. Correa University of the Free State, Bloemfontein, South Africa Frederick O. Skae Rhodes University, Makhanda, South Africa Follow this and additional works at: https://www.ebrjournal.net/home Part of the Behavioral Economics Commons, International Business Commons, and the Strategic Management Policy Commons Recommended Citation Recommended Citation Engelke, D., Pearse, N., Correa, F., & Skae, F. (2024). The Relationship between Culture, Sustainable Use of Resources, and Financial Performance: An Institutional and Natural-Resource-Based Perspective. Economic and Business Review, 26(2), 61-80. https://doi.org/10.15458/2335-4216.1335 This Original Article is brought to you for free and open access by Economic and Business Review. It has been accepted for inclusion in Economic and Business Review by an authorized editor of Economic and Business Review. ORIGINAL ARTICLE The Relationship between Culture, Sustainable Use of Resources, and Financial Performance: An Institutional and Natural-Resource-Based Perspective DeonH.Engelke a,b, * ,NoelJ.Pearse a ,FabioM.Correa c ,FrederickO.Skae a a Rhodes University, Makhanda, South Africa b IEE Varsity College, Gqeberha, South Africa c University of the Free State, Bloemfontein, South Africa Abstract Modelling a dataset of 5230 globally listed rms through two statistical approaches reecting the primary principles of Natural-Resource-Based Theory and Institutional Theory, respectively, this study provides evidence that sustainability initiatives developed by rms are being rewarded in the form of improved Corporate Financial Performance (CFP). Culture has a signicant inuence on both rm sustainability performance, captured in ESG ratings, and CFP and also interacts with other variables, including industry sector and socio-economic development of a rm’s markets. This study is unique in hypothesising and statistically proving that sustainability is a mechanism that activates the potential of culture to produce CFP . Natural-Resource-Based Theory (NRBT) and Institutional Theory (DiMaggio & Powell, 1983) provide complementary explanations for the relationship between the culture of a rm and its CFP being mediated by sustainability, effectively determining rms’ approach to the use of their resources in a sustainable or unsustainable way. Certain relationships between culture, sustainability performance, and CFP , however, are better explained by Institutional Theory than NRBT. Keywords: National culture, Sustainability, ESG, Resource-Based Theory, Natural-Resource-Based Theory, Institutional Theory JEL classication: A13, M14, Q01 Introduction H ow should rms deal with competing demands for short-term Corporate Financial Performance (CFP) versus their long-term commitments to peo- ple and the natural environment and simultaneously maintain a competitive advantage? Investments in sustainability are costly, and without a reasonable ex- pectation of a return on investment, rms must eval- uate whether it pays to do good (Sikacz & Wołczek, 2018). Despite the growing importance and promi- nence of environmental, social, and governance (ESG) behaviour, research on the relationship between Cor- porate Social and Environmental performance (CSEP) and CFP has mixed results, hence creating confusion rather than reinforcing the importance of the rela- tionship (Grewatsch & Kleindienst, 2017; Lo & Kwan, 2017). With the profusion of studies examining the link between corporate social and nancial performance, the role of culture has been largely ignored. The ten- sions between short-term nancial performance and long-term sustainability, together with globalisation and international sales and operations by rms, raises Received 19 November 2022; accepted 16 January 2024. Available online 5 June 2024 * Corresponding author. E-mail address: deon@inkanyezi.co.za (D. H. Engelke). https://doi.org/10.15458/2335-4216.1335 2335-4216/© 2024 School of Economics and Business University of Ljubljana. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/ licenses/by-nc-nd/4.0/). 62 ECONOMIC AND BUSINESS REVIEW 2024;26:61–80 questions about the role that culture plays in how rms deal with these competing demands (Kostova et al., 2008). The study’s objective was to investigate the extent to which rms approach the use of their resources in a sustainable or unsustainable way, which acts as the mechanism through which culture generates nancial results. The use of cultural denitions applied nationally at rm level is justied in several ways. First, several studies (Ho et al., 2012; Husted, 2005; Peng et al., 2012; Ringov & Zollo, 2007; Russo & Fouts, 1997; Wronski & Klann, 2020) have applied Hofstede’s (1980) national culture dimensions at the rm level. Shi and Veenstra (2020) have also used Minkov’s reconceptualised na- tional culture dimensions in this way. Furthermore, with respect to the relationship between the culture of an organisation and the market in which it oper- ates, according to Institutional Theory, organisations conform to the prevailing institutional structure of the environment in which they operate and exhibit the values and norms of their societies (Shane, 1992). At rm-level, culture is central to sustainability for two main reasons. First, culture is an antecedent of rm sustainability performance (Ringov & Zollo, 2007), and second, the institutions and stakeholders, including customers that inuence rms, may value sustainability, expressed as a rm’s investment in people and the natural environment, differently, if at all (Tata & Prasad, 2015). Despite culture’s inu- ence on the relationship between rm sustainability or CSEP and CFP , it is signicantly underresearched (Miska et al., 2018; Parboteeah et al., 2012). Further- more, studies tend to lack theoretical grounding in explaining how national culture affects sustainability at the rm level (Miska et al., 2018). This study uniquely positions a rm’s investment in sustainability in the centre of the relationship between its culture and its nancial performance. In so doing, the study posits, rst, that the sustainability approach of rms is the mechanism or mediator through which culture produces CFP , and second, that the culture of a rm is an antecedent of sustainability actions. Consequently, sustainability is viewed as a matter of principle or through the lens of cultural values, rather than as an operations issue. The aim of this study is to investigate the relation- ship between culture and sustainability practices in ensuring CFP . In light of this, the primary research question of the study is: Can NRBT and Institutional Theory provide an explanation for the relationship between culture and CFP being mediated by sustain- ability, that is, a rm’s approach to the use of its resources in a sustainable or unsustainable way? The following subquestions guide the objectives of the re- search: 1. Is a rm’s sustainable use of resources inuenced by the sector in which it operates and by the level of socio-economic development of its markets? 2. What is the relationship between culture and a rm’s sustainable use of its resources? Put dif- ferently, can cultural differences at rm level account for varying levels of sustainability per- formance? 3. What is the relationship between culture and a rm’s nancial performance? 4. What is the relationship between a rm’s sus- tainable use of its resources and its nancial performance? 5. Does sustainability mediate the relationship be- tween culture and nancial performance, and if so, how? 1 Literature review 1.1 Theoretical explanations: Institutional Theory and Resource-Based Theory The study draws on two theories of rm compet- itiveness, namely Institutional Theory (DiMaggio & Powell, 1983) and Resource-Based Theory (RBT; Bar- ney, 1991). Both can explain how it pays to do good or how rms extract CFP from culture through their sustainability policies and practices, but for different reasons. RBT argues that rms build competitive advan- tage from internal rm resources and capabilities that are valuable, rare, inimitable, and organised to enable their exploitation (Barney & Hesterly, 2012). Furthermore, the natural environment in RBT liter- ature includes not only the earth’s natural resources but resources that are related to social welfare and used in a socially responsible way (Bals & Tate, 2018; Hart & Dowell, 2010; McWilliams & Siegel, 2011). RBT views culture as an internal, intangible re- source or capability for capturing value (Barney et al., 2011). Institutional Theory describes national culture at a country level as an informal institution (North, 1990) and as a means for rms to gain legitimacy. It is suggested here that legitimacy is gained through util- ising resources in a way that is valued by society, which then produces outcomes that match the val- ues of both the rm and its stakeholders including its customers, employees, and markets. Put differ- ently, legitimacy is achieved when the culture of the rm is aligned with or assimilates the culture ECONOMIC AND BUSINESS REVIEW 2024;26:61–80 63 of the rm’s inuencing institutions. Institutional Theory may provide a fuller understanding of cul- ture’s inuence on CSEP and CFP as it explains how rms assimilate the national cultures of their markets (Shane, 1992). Acknowledging that differences in rm and context characteristics may affect the CSEP–CFP relationship and better explain it, literature has also moved from whether it pays to do good to when it pays to do good (Orlitzky et al., 2011). For example, Shi and Veenstra (2020) found evidence for the moderating effect of the national culture of rms on the strength of the relationship between CSEP and rms’ CFP . Surroca et al. (2010) provided evidence rather for the media- tion effect of culture. In other words, culture does not merely attenuate or amplify the strength of the rela- tionship between CSEP and CFP but explains it. With the above two studies being among the exceptions, research has largely ignored the obvious—the perva- sive inuence of values in the CSEP–CFP discussion (Maurer et al., 2011; Walsh et al., 2003). 1.2 Dimensions of culture This study applies six dimensions of Hofstedes’ (1980) national culture and Minkov’s reconceptuali- sation (Minkov, 2018; Minkov et al., 2018, 2017) of Hofstedes’s dimensions at the rm level. These di- mensions are summarised in Table 1. 1.3 Culture and Corporate Financial Performance (CFP) Corporate Financial Performance (CFP) denes the performance of rms in clearly dened nancial terms. Regarding the CFP measurement, the average percentage change in a rm’s share price over ve years, calculated annually, is the chosen measure of CFP for the purposes of the study for several reasons. Firstly, market-based measures and especially aver- age percentage change in a rm’s share price over ve years is more suited to valuing intangible as- sets, such as culture and sustainability (Hillman & Keim, 2001). Secondly, market-based measures are a reection of future, long-term nancial performance that takes into account stakeholder sentiments (García et al., 2020). Thirdly, it accounts for rms’ perfor- mance over ve reporting years, thereby reducing the effect of economic shocks or specic events. Fourthly, this market-based measure reduces effects of ma- nipulation that may be inherent in accounting-based measures of performance (Hillman & Keim, 2001). Fi- nally, average percentage change in share price over ve years has not been used in the reviewed literature on the relationship between CSEP and CFP . Several authors have, however, used variations of share price performance as a proxy for CFP in the context of sus- tainability (Brooks & Oikonomou, 2018; Lo & Kwan, 2017). Shi and Veenstra (2020) provide evidence that when rms engage in strategic investments consistent with the embedded cultural values of stakeholders, customers are more likely to purchase goods and ser- vices, resulting in increased CFP . In contrast, rms that make investments that clash with stakeholders’ cultural values produce lower CFP . This is a result of lower organisational legitimacy and the lack of value placed in rms’ misaligned investments by its stakeholders. With respect to CFP of rms generated through share value, Sultana et al. (2018) suggests that investment decisions made in selecting a share from a wide range of available stock market options is culturally derived. 1.4 Culture and Corporate Social and Environmental Performance (CSEP) CSEP embraces each ESG pillar, namely environ- mental, social, and governance performance. Crit- tenden et al. (2011), for example, note that an array of management approaches and terms (e.g., social responsibility, corporate social responsibility, envi- ronmental responsibility, sustainability, sustainable development, green marketing, corporate citizenship, and triple bottom line) have been enacted to demon- strate rms’ accountability. Husted and Milton de Sousa-Filho (2017) claim that ESG performance refers to the actual impacts and outcomes of sustainabil- ity initiatives which materialise from the projects, practices, and policies created by rms to satisfy the obligations they assume for society’s benet. One relevant difference among countries for sus- tainability performance is culture (Bonera et al., 2017; Shi & Veenstra, 2020; Staiff, 2008). Several studies, most of which use some form of regression analysis, have also tested the direct relationship of Hofstede’s dimensions of national culture at rm level on CSEP (Ho et al., 2012; Park et al., 2007; Peng et al., 2012; Ringov & Zollo, 2007; Vitolla et al., 2019). See Table 2. 1.5 Human Development Index and industry sector This study investigates two variables that are hy- pothesised to inuence sustainability performance. First, to the extent that institutional context affects CSEP and CFP , the relationship between the two is ex- pected to vary across different economic sectors (Ait Sidhoum & Serra, 2017). As a result, this study investi- gates the inuence of a rm’s industry sector. Second, 64 ECONOMIC AND BUSINESS REVIEW 2024;26:61–80 Table 1. Investigated dimensions of culture. Individualism vs. collectivism (IND) In individualistic (IND) societies individuals have loose ties that often only bind an individual to their immediate family. The emphasis is on the “I” versus the “we.” Masculinity vs. femininity (MAS) When emotional gender roles overlap and are not polarised, society is said to be feminine, that is to say, both women and men and are supposed to be concerned with the quality of life, modesty, and tenderness (Hofstede et al., 2010, p. 140), as opposed to achievement, material rewards for success, heroism, assertiveness, and competitiveness. Power distance (PD) PD is dened as “the extent to which the less powerful members of organizations and institutions (like the family) accept and expect that power is distributed unequally” (Hofstede, 2011, p. 9). Uncertainty avoidance (UA) The uncertainty avoidance index reects a society’s acceptance of ambiguity. UA is an indicator of whether people embrace or avoid the unknown, unexpected, or situations challenging the status quo. Long-term orientation vs. short-term orientation (LTO) Societies with a high degree in this index (long-term) regard it as a necessity to be pragmatic and adaptable to solve problems as circumstances dictate. At the same time, LTO societies display a strong tendency to invest and save, be thrifty, and persevere in achieving results (Hofstede, 1984). Indulgence vs. restraint (INDULGE) Indulgence is displayed in societies that allow relatively free gratication of human desires, particularly directed at having fun and enjoying life. Restraint is expressed in societies that suppress gratication of needs and control gratication through strict social norms (Hofstede, 1984). Individualism–collectivism (INDM) Minkov et al. (2017) reconceptualised IND–COLL by identifying at least two independent dimensions: social ascendancy and conformism. Dominant in collectivist cultures, the dimension’s conformism aspect incorporates a lack of personal space for individuals to choose which societal rules are sensible or obsolete, restrictiveness, and conict avoidance. Societal freedom is greater in IND cultures and lesser in collectivist ones. Monumentalism–exibility (MON) This dimension is a reconceptualisation of long-term orientation (LTO) (Hofstede, 2001) or Confucian work dynamism (Chinese Culture Connection, 1987). Monumentalist societies embrace the inherency of strong beliefs and values even when circumstances change and shift. Societies high in exibility place importance on being adaptable and exible rather than holding unalterable beliefs and values (Minkov, 2018). previous research (Park et al., 2007; Sumantri, 2017) suggests that the socio-economic development of the market in which a rm operates will also inuence this relationship. Consequently, the study adopts the United Nations Human Development Index (HDI) as a measure for the level of socio-economic develop- ment in country markets. The HDI remains a simple unweighted average of a nation’s income, education, and longevity, and is widely accepted in development discourse (United Nations, 2021). 2 Methodology 2.1 Hypotheses The review of literature led to the development of the following hypotheses: H1 0 . There is no statistically signicant relationship be- tween the level of socio-economic development of the market in which a rm operates and its sustainable use of resources. H1 a . Socio-economic development of the market in which a rm operates has a statistically signicant relationship with a rm’s sustainable use of resources. H2 0 . There are no statistically signicant differences be- tween the sustainability practices of different industry sectors. H2 a . There are statistically signicant differences between the sustainability practices of different industry sectors. H3 0 . From the perspective of NRBT, the sustainability practices of a rm do not mediate the relationship between culture and the nancial performance of the rm. H3 a . From the perspective of NRBT, the sustainability practices of a rm are a statistically signicant mediator of the relationship between culture (i.e., dimensions of low power distance, low UA, individualism, femininity, LTO, indulgence, collectivism [Minkov] and monumentalism) and nancial performance of the rm. For mediation to occur the following hypotheses are tested: H3(i a ). There is a statistically signicant relationship be- tween culture and rm nancial performance. H3(ii a ). Culture has a statistically signicant relationship with a rm’s sustainability practices. ECONOMIC AND BUSINESS REVIEW 2024;26:61–80 65 Table 2. Comparison of ndings on the relationship between CSR/CSEP and Hofstede’s dimensions. Authors Scope CSR issue PD IND MAS UA LTO IVR Studies at the rm level Ringov & Zollo, 2007 Global CSEP (Innovest ESG index) NS NS Vachon, 2010 Global CSEP practices NS C NS NS Ho et al., 2012 Global CSEP C C C Ioannou & Serafeim, 2012 Global CSEP (constructed index) C C Once & Almagtome, 2014 Global Environmental disclosure C C Peng et al., 2012 Global CSR engagement (DJSI index) C C Thanetsunthorn, 2015 Asia, NZ, Aus CSR, including employee, community, and environment (CSR Hub) NS C Maali & Al-Attar, 2017 Global Transparency (Transparency International index) NS C NS NS Petruzzella et al., 2017 Global Corporate Environmental Responsibility (Thomson Reuters ESG database) C NS C NS C Vitolla et al., 2019 Global Integrated Reporting Quality as a proxy for value creation * C C Studies at the country level Husted, 2005 Global The social and institutional capacity for environmental sustainability (Environmental Sustainability Index, ESI—WEF) C Park et al., 2007 Global Environmental Sustainability Index (WEF) NS * NS Cox et al., 2011 Global GDPC balanced with environmental sustainability (Weighted GDPC) C NS NS Halkos & Skouloudis, 2017 Global National CSR index NS NS NS C C p<:1; p<:05; p<:01; NS: nonsignicant. Source: own review of research. H3(iii a ). There is a statistically signicant relationship be- tween the sustainability practices of a rm and its nancial performance. H4 0 . From the perspective of Institutional Theory, the sustainability practices of a rm do not mediate the rela- tionship between culture and the nancial performance of the rm. H4 a . From the perspective of Institutional Theory, the sustainability practices of a rm mediate the relationship between culture (i.e., dimensions of low power distance, low UA, individualism, femininity, LTO, indulgence, col- lectivism [Minkov] and monumentalism) and nancial performance of the rm. For mediation to occur the following hypotheses are tested: H4(i a ). There are statistically signicant differences in the nancial performance of high versus low cultural group- ings of rms. H4(ii a ). There are statistically signicant differences in the value that is placed on the sustainability practices of high versus low cultural groupings of rms. H4(iii a ). There is a positive and statistically signicant relationship between the sustainability practices and the nancial performance of rms that have cultures highly valuing sustainability. H4(iv a ). There is a positive and statistically signicant relationship between the sustainability practices and the nancial performance of rms that have cultures that do not value sustainability. In an RBT approach, the relationships under inves- tigation were determined through logistical regres- sion analysis; from an Institutional Theory perspec- tive, differences in high- and low-performing groups were analysed using Analysis of Variance (ANOVA), at a signicance level of 10%, followed by the Tukey test to compare the levels in the dimensions that pre- sented a signicant result at 5%. The overall theoretical model, shown in Fig. 1, illus- trates how rms’ sustainable use of resources or CSEP mediates the relationship between culture and CFP . 2.2 Data collection All rm level data, including ESG and CFP mea- sures, were extracted from the nancial services 66 ECONOMIC AND BUSINESS REVIEW 2024;26:61–80 Fig. 1. Path diagram showing the arrangement of variables. Source: own construct. company Renitiv during 2021 (retrieved on April 10, 2021) and reect data for the previous tax year. In addition to a range of accounting and market-based CFP measures, Renitiv captures and calculates over 500 company-level ESG measures, of which a subset of 186 of the most comparable and material per indus- try constitute the overall company assessment and scoring process (Renitiv, 2021). These are grouped into 10 categories that reformulate the environmental, social, and governance pillar scores and the nal com- bined ESG score, which reects the company’s ESG performance, commitment, and effectiveness based on publicly reported information. The ESG scores pro- vided by Renitiv are claimed to be less biased as the formulation considers several control variables, such as the rm type, size, and number of employees (Renitiv, 2021). The Human Development Index ranking is drawn from the United Nations 2020 Human Development Report (United Nations, 2021). Hofstede cultural scores were taken from Hofstede Insights, an or- ganisation that has merged with Itim International, The Hofstede Centre and Feedback Dialogue (Hof- stede Insights, 2019). Minkov culture scores were extracted from the work of Minkov and collabora- tors (Minkov et al., 2018, 2017). Minkov’s cultural dimension scores are on a different scale to Hofst- ede’s (1980) cultural scores for countries. As a result, Minkov’s cultural dimensions were transformed such that the values are on the same range as Hofst- ede’s cultural dimensions. This allows for the direct comparison of Minkov’s dimensions to Hofstede’s dimensions. This study includes a sample of 5230 1 listed compa- nies with both headquarters and country of exchange based in 55 countries distributed in several sectors, including basic materials, industrials, consumer cycli- cals, consumer non-cyclicals, nancials, healthcare, and technology. While the study has accounted for the interaction effects of co-variables such as socio-economic devel- opment and sector, the relationships between culture, sustainability, and CFP may depend on various or- ganisational and other contingencies, such as resource slack, rm size, and the stage in the rm’s life cy- cle, among other factors. Future studies could include these factors. 2.3 Data analysis procedure Two modelling approaches were conducted for the two theories to explore complementarity of the theo- ries. The rst model is reective of the principles of NRBT, and the second, which examines differences between high and low groups across the three major variables, reects the nature of Institutional Theory’s interest in groups and subgroups. See Table 3. The NRBT mediation model was tested using re- gression analysis on the full dataset to determine whether, rstly, NRBT’s primary tenet that rms’ sustainable use of resources will produce CFP or sustainable competitive advantage (SCA) holds, and secondly, that culture is a resource to be leveraged for value capture. To create the dependent variable, the average percentage change in share price over ve years was recoded into a binary variable (0 and 1), where 0 indicated that the value of the average percentage change in stock price was negative and 1 indicated that the value of the average percentage change in stock price was positive. Any company with 0% growth was excluded from this analysis. Through logistic regression, the effect of each cultural dimension in determining the probability of a rm ex- periencing positive growth was tested. This analysis 1 To reect the national culture of rms more accurately, companies whose country of origin and country of exchange were not the same were removed from the full dataset of 7333 rms. Companies for which the combined ESG score was unavailable were removed from the database. Firms based in countries that had not been rated on the chosen national cultural dimensions were also removed. To negate the issues of an imbalanced dataset, weightings were applied to the data. The weights, applied based on standard deviation, are the inverse of the variance for observations between each country (Pruzek & Frederick, 1978). ECONOMIC AND BUSINESS REVIEW 2024;26:61–80 67 Table 3. Comparison of the models employed. Method Outcome Variables Relationships investigated NRBT Regression Evidence of a universal relationship between variables • Independent variable: cultural dimensions IND, MAS, PD, UA, LTO, INDULGE, INDM, MON • Mediating variable: ESG • Situational variables: HDI and sector • Dependent variable: CFP • HDI to CSEP (H1 a ) • Sector to CSEP (H2 a ) • Cultural dimensions to CFP (H3i a ) • Cultural dimensions to CSEP (H3ii a ) • CSEP to CFP (H3iii a ) Institutional ANOVA Evidence of differences between high and low groups in the nuanced relationships between variables Theory • Covariables: cultural dimensions, ESG, HDI, and sector • Dependent variable: CFP • Low, medium, and high cultural dimensions to low, medium, and high CFP • Low, medium, and high cultural dimensions to CSEP • High and low CSEP-valuing cultures to CFP Source: own construct. was also performed according to the observations by level of HDI—low or high—and by economic sector to determine whether these variables affected the re- sults. The Institutional Theory mediation model was tested using ANOVA on subgroups of the full dataset in accordance with Institutional Theory’s assump- tions, including that culture in rms across the global dataset is derived from heterogeneous, informal insti- tutional, cultural pressures. The Institutional Theory mediation model then expects to nd nuances in the relationship between culture, sustainability, and CFP among high, medium, and low cultural groups. To determine the inuence of HDI and economic sector on ESG, subgroup analysis was employed due to the nature of the data type of both the HDI variable being categorised as low or high and the categorical variable Economic Sector (Sharma et al., 1981). The Institutional Theory mediation model was tested by rst splitting each cultural dimension into three distinct categories, with the splits occurring at the 33.3rd percentile and 66.7th percentile to assess whether the relationship differed for companies with low- and high-performing cultural proles. The per- centile split was informed by the nature of the cultural dimensions being rated on a scale of 0 to 100, and to aid in the interpretation of the results (DeCoster et al., 2011). The low category included observations that fell below 33.3%, the middle category included observations that fell in the range 33.3% to 66.7%, and the high category included observations that fell above 66.7%. This analysis was performed on the full dataset and did not exclude the 0% growth in CFP as in the NRBT dataset. The condence intervals of variables ESGCombined and CFP per cultural di- mension category were determined to conrm that these condence intervals did not overlap. Following that, ANOVA was performed, followed by Tukey’s Honestly Signicant Difference (HSD) Test (Tukey, 1949), with means adjusted by the HDI2019 and ES- GCombined covariates with the aid of the emmeans package (Lenth, 2021; R Core Team, 2021). The effect of variables that dene the cultural di- mension of companies on company performance was analysed using a linear model with nested effects for company sector. The model is described below. Y i jk DmCb i Cg j C! k Cd 1 Cd 2 Cd 3 Cd 4 Cd 5 Cd 6 Cd 7 Cd 8 Cd=! 1k Cd=! 8k C i jkl where: Y ijk D observed variable;mD constant; bD ESGCombined covariate; gD HDI2019 covariate; !D sector effect; d 1 D individualism effect; d 2 D masculinity effect; d 3 D long-term orientation effect; d 4 D uncertainty avoidance effect; d 5 D indulgence effect; d 6 D MON effect; d 7 D PD effect; d 8 D INDM effect; D residual with N (0,s 2 ); and nested effects. After ANOVA, the Tukey test was performed to compare the levels in the dimensions that presented a signicant result at 5%. 3 Results Before an analysis of results according to the two approaches informed by NRBT and Institutional The- ory respectively was undertaken, the hypothesised inuence of socio-economic development, measured by HDI and sector, was completed. In testing for the 68 ECONOMIC AND BUSINESS REVIEW 2024;26:61–80 Table 4. Regression analysis of HDI on ESG. Coefcients 95.0% CI for B Collinearity statistics Model B SE Beta T s Lower bound Upper bound Tolerance 1 (Constant) 19.93 0.486 40.968 0 18.977 20.884 HDI2019 25.527 0.546 .095 46.722 0 24.456 26.598 1 effects of HDI on ESG, a regression was performed, which conrmed that HDI was a positive signicant predictor of ESG as a measure of sustainability. The results are depicted in Table 4. Accordingly, the results conrm a rejection of the null hypothesis and conrmation for the alternative hypothesis (H1 a ): Socio-economic development of the market in which a rm operates has a statistically sig- nicant and positive causal relationship with a rm’s sustainable use of resources. In testing for effects of sector on rms’ sustainability performance, ANOVA was used to determine sig- nicant differences between sustainability practices within different industry sectors. An overall differ- ence was found to be statistically signicant, as shown in Table 5 below. Using the Tukey test, signicant differences were found between all sectors, except between consumer cyclicals and nancials, where the difference was sta- tistically insignicant. The results entail a rejection of the null hypothesis and conrmation for the alternative hypothesis (H2 a ): There are statistically signicant differences between the sustainability practices of different industry sectors. 3.1 NRBT mediation model Baron and Kenny (1986) list three conditions that must hold for mediation to exist. Condition one states that the independent variables and the proposed Table 5. ANOV A between sectors for ESG performance. Tests of between-subjects effects Type III sum Source of squares df Mean square F Corrected 282,490.15 a 6 47,081.692 127.002 model Intercept 283,958,787.1 1 283,958,787.1 765,974.9 Sector 282,490.15 6 47,081.692 127.002 Error 52,961,163.5 142,862 370.716 Total 373,645,021.3 142,869 Corrected 53,243,653.65 142,868 total a R squaredD .005 (adjusted squaredD .005). mediator must each be signicantly related to the dependent variable when considered separately. This condition requires that the culture variables, taken separately, and ESG each have a signicant impact on CFP . Results show that this condition holds for Hofstede’s dimensions but not for Minkov’s. In the rst ordinary least squares regression model, all Hofstede’s cultural dimensions were assessed with CFP , and all the dimensions were statistically signif- icant. Minkov’s individualism (INDM) and monu- mentalism (MON) were assessed with CFP , and only INDM was statistically signicant. Power distance (PD), masculinity (MAS), uncertainty avoidance (UA) and indulgence (INDULGE) showed a negative re- lationship with performance, indicating that an in- crease in one of these cultural dimensions relates to a decrease in the probability of obtaining positive growth. Individualism (IND), long-term orientation (LTO), and INDM showed a positive relationship with performance, which indicates that an increase in IND, LTO, and INDM corresponds with a greater probability that the company will experience positive growth. Table 6 depicts the relationships between the cultural dimensions and CFP . While the relationships between these cultural dimensions and CFP is signi- cant, the effect is very small or weak, indicated by OR being very close to one. With respect to Minkov’s two dimensions, only INDM was signicant. MON was nonsignicant. With respect to all six of Hofstede’s cultural dimen- sions, however, there is sufcient evidence to reject the null hypothesis and afrm the alternative hy- pothesis H3(i a ): There is a statistically signicant relationship between culture and rm nancial per- formance. The second part of the rst condition pertaining to the requirement of the mediator, ESG, having a signif- icantly positive relationship with CFP , is also satised. It is apparent that ESGCombined is a statistically sig- nicant predictor of CFP (Wald D 536.265, dfD 1,sD 0.000, Exp(B)D 1.005). In general, the likelihood of a company having positive growth is greater as the ESGCombined score increases. The scale of increase is small, however. Results conrm a rejection of the null hypothesis and acceptance of H3(iii a ): that there is a statistically ECONOMIC AND BUSINESS REVIEW 2024;26:61–80 69 Table 6. Logistic regression for the relationship of cultural dimensions to CFP . 95% CI for OR B Wald s OR Lower Upper 1 PD 0.009 510.271 0 0.991 0.99 0.991 IND 0.014 2050.686 0 1.014 1.013 1.015 MAS 0.006 382.881 0 0.994 0.994 0.995 UA 0.003 219.659 0 0.997 0.996 0.997 LTO 0.006 515.909 0 1.007 1.006 1.007 INDULGE 0.007 235.073 0 0.993 0.992 0.994 ESG 0.006 599.688 0 1.006 1.005 1.006 2 MON 0 0.003 0.958 1 1 1 INDM 0.003 1453.491 0 1.003 1.003 1.003 ESG 0.005 407.157 0 1.005 1.004 1.005 signicant relationship between the sustainability practices of a rm and its nancial performance. Similarly, condition two states that the indepen- dent variables should be signicantly related to the proposed mediator. In this study, it would suggest that the national culture variables should have a sig- nicant impact on ESG. In the rst ordinary least squares regression model, all tested Hofstede’s cul- tural dimensions were signicantly related to ESG. Minkov’s cultural dimensions MON and INDM were also both signicantly related to ESG. These results can be found in Table 7. All the cultural dimensions had a positive relationship with ESG, except MAS. Masculinity had a negative relationship with ESG. The beta coefcients indicated the strongest effect on ESG for LTO (.192), UA (.175), MAS ( .154), and IN- DULGE (.153), with the strength of the relationship weaker for IND (.071) and PD (.054). The relationship between Minkov’s dimensions (MON .023; INDM .085) and ESG was the weakest. The results support the rejection of the null hy- pothesis and acceptance of the alternative hypothesis H3(ii a ): that culture has a statistically signicant rela- tionship with a rm’s sustainability practices. Table 8. Proportion of the relationship between culture and CFP mediated by sustainability. 95% CI for OR Proportion Model OR Lower Upper mediated 1 PD 0.991 0.99 0.991 0.039501 IND 1.014 1.013 1.015 0.020568 MAS 0.994 0.994 0.995 0.194743 UA 0.997 0.996 0.997 0.461988 LTO 1.007 1.006 1.007 0.120493 INDULGE 0.993 0.992 0.994 0.167056 2 MON 1 1 1 0 INDM 1.003 1.003 1.003 0.044586 Finally, Baron and Kenny’s (1986) third condition for mediation states that the relationship between independent variables and the dependent variable should be weaker (for partial mediation) or nonsignif- icant (for full mediation) when the proposed mediator is included in the model than when the mediator is not included. In this study, this condition requires that the coefcients of the culture variables on CFP are sig- nicantly smaller when ESG is included in the model than when it is not included. In order to determine the extent to which sustainability mediated the rela- tionships between culture and CFP , the indirect and direct effects were determined, and the proportion mediated was calculated. The results are depicted in Table 8. There is no generally accepted threshold to indicate what constitutes a large proportion mediated (Mioˇ cevi´ c et al., 2018). Researchers merely discuss small proportions and large proportions. However, previous studies have considered an acceptable pro- portion mediated at greater than .5 (Mioˇ cevi´ c et al., 2018). The cultural dimension with the greatest propor- tion mediated is UA at .46198, with ORD 0.997, which indicates that the greater the level of UA, the lower the odds of the company experiencing positive nan- cial growth. The relationships between MAS (0.19), Table 7. Linear regression for the relationship of culture dimensions to ESG. Unstandardized coefcients Standardized coefcients 95.0% condence interval for B Model B SE Beta T s Lower bound Upper bound 1 (Constant) 21.456 0.505 42.511 0 20.467 22.445 PD 0.057 0.004 .054 15.852 0 0.05 0.064 IND 0.049 0.003 .071 18.279 0 0.044 0.054 MAS 0.163 0.002 .154 67.834 0 0.168 0.158 UA 0.158 0.002 .175 76.313 0 0.154 0.162 LTO 0.137 0.003 .192 54.693 0 0.132 0.142 INDULGE 0.167 0.004 .153 41.676 0 0.159 0.174 2 (Constant) 41.495 0.053 789.831 0 41.392 41.598 MON 0.005 0 .023 11.123 0 0.004 0.006 INDM 0.028 0.001 .085 41.649 0 0.027 0.029 70 ECONOMIC AND BUSINESS REVIEW 2024;26:61–80 INDULGE (0.17), and LTO (0.12) with CFP indicated mediation percentages below the 0.5 threshold. Evidence indicates the null hypothesis (H3 0 ) can- not be rejected. From the perspective of NRBT, the sustainability practices of a rm do not mediate the relationship between culture (i.e., dimensions of low power distance, low UA, individualism, femininity, LTO, indulgence, femininity [Minkov], and monu- mentalism) and nancial performance of the rm. 3.1.1 Subgroup analysis Following an analysis of the results for the overall mediation model, analysis for mediation was per- formed at a subgroup level for high and low HDI, as well as for sector. In order to test whether HDI, as a measure of socio- economic development of the country in which a rm operates, inuences results, a median split was used to separate rms into two categories, low (.645–.926) and high (.9261–.957). A median split has been used in previous studies in order to simplify the interpre- tation of the analysis (DeCoster et al., 2011). The cultural dimension that had the greatest pro- portion mediated overall was uncertainty avoidance at .46198. The relationships between masculinity (.19), indulgence (.16), long-term orientation (.12), power distance (.03), individualism (.02), and INDM (.04) with CFP were mediated at levels below the accepted threshold at which mediation is considered to oc- cur. The collation of results of mediation for each cultural dimension, depicted in Table 9, shows that sustainability weakly mediated the relationship be- tween PD and CFP; the proportion mediated was highest in high-HDI countries (.18) and in the health- care (.34) and technology (.14) sectors. Sustainability also weakly mediated the relationship between in- dividualism and CFP; the proportion mediated was highest in the basic materials (.18), technology (.14), and healthcare (.40) sectors. Sustainability weakly mediated the relationship between masculinity and CFP; the proportion mediated was highest in the basic materials (0.14), healthcare (0.15), and indus- trials (0.21) sectors. For uncertainty avoidance—the cultural dimension that had the greatest proportion mediated—with the greater the level of UA, the lower the odds of the company experiencing positive - nancial growth, the mediation effect was strongest in basic materials (.23), consumer cyclicals (.51), health- care (.46), and technology (.64). Sustainability weakly mediated the relationship between LTO and CFP; the proportion mediated was highest in high-HDI countries (.33) and the consumer cyclicals (.36), basic materials (.24), and healthcare (.32) sectors. Sustain- ability also weakly mediated the relationship between indulgence (INDULGE) and CFP , but for low-HDI countries ESG fully mediated the relationship be- tween INDULGE and CFP . The proportion mediated equalled 1, indicating full mediation as the relation- ship between INDULGE and CFP became statistically insignicant with the addition of sustainability as a mediating variable, with OR mediation D 1. The medi- ation effect was also more pronounced in the basic materials (.28) and healthcare sectors (.25). In con- trast, the proportion mediated in high-HDI countries was small (.07). Sustainability weakly mediated the relationship between INDM and CFP , but the media- tion effect was more emphatic in healthcare (.62) and technology (.54). Sustainability also weakly mediated the relationship between MON and CFP , but the me- diation effect was noticeable in healthcare (.46) and technology (.21). While the extent to which sustainability, measured by rms’ ESG scores, explains the relationship be- tween cultural dimensions and CFP across sectors, evidence indicates the null hypothesis (H3 0 ) cannot be rejected: that the sustainability practices of a rm, from the perspective of NRBT, do not mediate the relationship between culture (i.e., dimensions of low power distance, low UA, individualism, femininity, LTO, indulgence, collectivism [Minkov], and monu- mentalism) and nancial performance of the rm. The following section summarises the eight cultural dimensions’ relationships with ESG and CFP , accord- ing to the results. Power distance (PD). Power distance (PD) showed a statistically negative relationship with CFP , which indicates that an increase in PD relates to a decrease in Table 9. Summary of proportion mediated per cultural dimension. Overall LOW HDI HIGH HDI BM CON FIN HC IND CON NON TECH PD .03 .09 .18 .04 .03 .01 .34 .00 .00 .14 IND .02 .04 .01 .18 .11 .01 .40 .01 .00 .14 MAS .19 .06 .06 .14 .27 .05 .15 .21 .01 .13 UA .46 .17 .04 .23 .51 .02 .46 .14 .01 .64 LTO .12 .04 .33 .24 .36 .05 .32 .07 .05 .09 INDULGE .16 1 .07 .28 .00 .02 .25 .10 .01 .01 INDM .04 .06 .11 .09 .10 .03 .62 .05 .00 .54 MON 0 0 .13 .04 0 .01 .46 .05 .04 .21 ECONOMIC AND BUSINESS REVIEW 2024;26:61–80 71 Table 10. Summary of relationship strength between cultural dimensions and ESG. Overall beta LOW HDI HIGH HDI BM CON FIN HC IND CON NON TECH PD .054 .016 .235 .105 .11 .16 .269 .004 .016 .279 IND .071 .016 .043 .125 .216 .077 .118 .113 .01 .391 MAS .154 .011 .106 .212 .162 .215 .024 .204 .118 .303 UA .175 .009 .104 .141 .149 .09 .151 .172 .084 .365 LTO .192 .014 .171 .208 .083 .122 .146 .163 .178 .229 INDULGE .153 .16 .225 .255 .013 .145 .131 .06 .404 .031 INDM .085 .004 .057 .042 .052 .048 .079 .047 .061 .047 MON .023 0 .065 .005 .001 .011 .042 .014 .021 .032 the probability of obtaining positive nancial growth (Table 6). Sustainability weakly mediated the relationship be- tween PD and CFP; the proportion mediated was highest in high-HDI countries (.18) and in the health- care (.34) and technology (.14) sectors. See Table 9. PD had a statistically signicant positive relation- ship with ESG, but the strength of the relationship was among the weakest of the cultural dimensions (Table 7). PD’s relationship with ESG was stronger and positive in technology (.279) and negative in high HDI ( .235) and healthcare ( .269). See Table 10. Individualism (IND). Individualism (IND) showed a positive relationship with performance, which indi- cates that an increase in IND corresponds with a greater probability that the company will experience positive growth. IND had a statistically signicant positive relationship with ESG, but the strength of the relationship was among the weakest of the cultural dimensions (Table 7). Sustainability weakly mediated the relationship between IND and CFP; the propor- tion mediated was highest in the basic materials (.18), technology (.14), and healthcare (.40) sectors (Ta- ble 8). IND’s relationship with ESG was stronger and positive in consumer cyclicals (.216) and technology (.391). See Table 10. Masculinity (MAS). Masculinity (MAS) showed a statistically negative relationship with CFP , which in- dicates that an increase in MAS relates to a decrease in the probability of obtaining positive nancial growth (Table 6). Masculinity had a negative relationship with ESG. The beta coefcients indicated a relatively strong effect of MAS on ESG ( .154) (Table 7). MAS’s relationship with ESG was negative across low and high-HDI countries and strongly negative in every sector, except healthcare, where the relationship was negligibly positive. See Table 10. Sustainability weakly mediated the relationship be- tween MAS and CFP; the proportion mediated was highest in the basic materials (.14), healthcare (.15), and industrials (.21) sectors. See Table 9. Uncertainty avoidance (UA). Uncertainty avoidance (UA) showed a statistically negative relationship with CFP , which indicates that an increase in UA relates to a decrease in the probability of obtaining posi- tive nancial growth (Table 6). UA had a statistically signicant positive relationship with ESG, and the re- lationship was relatively strong (.175) (Table 7). UA’s relationship with ESG was positive across all sectors but negative in high-HDI countries ( .104). See Ta- ble 10. UA was the cultural dimension that had the greatest proportion mediated, at .46198, with ORD 0.997, which indicates that the greater the level of UA, the lower the odds of the company experienc- ing positive nancial growth. The mediation effect was strongest in basic materials (.23), consumer cycli- cals (.51), healthcare (.46), and technology (.64). See Table 8. Long-term orientation (LTO). Long-term orientation (LTO) showed a positive relationship with perfor- mance, which indicates that an increase in LTO cor- responds with a greater probability that the company will experience positive growth. LTO had a positive relationship with ESG. The beta coefcients indicated the strongest effect for LTO (.192) on ESG (Table 7). LTO was the only cultural dimension whose relation- ship to ESG was positive regardless of socio-economic development or sector. See Table 10. Sustainabil- ity weakly mediated the relationship between LTO and CFP; the proportion mediated was highest in high-HDI countries (.33) and the consumer cyclicals (.36), basic materials (.24), and healthcare (.32) sectors (Table 9). Indulgence (INDULGE). Indulgence showed a sta- tistically negative relationship with CFP , which in- dicates that an increase in indulgence relates to a decrease in the probability of obtaining positive nan- cial growth (Table 6). INDULGE had a positive relationship with ESG, and the strength of this relationship (.153) was rela- tively high (Table 7). INDULGE’s relationship with ESG was positive overall and across sectors (the 72 ECONOMIC AND BUSINESS REVIEW 2024;26:61–80 relationship was negligibly negative for consumer cyclicals) and low-HDI countries. In stark contrast, INDULGE had a strong negative relationship with ESG in high HDI countries ( .225). See Table 9. Sus- tainability weakly mediated the relationship between Indulge and CFP , but for low-HDI countries ESG fully mediated the relationship between INDULGE and CFP . The proportion mediated equalled 1, indicating full mediation as the relationship between INDULGE and CFP became statistically insignicant with the ad- dition of sustainability as a mediating variable, with OR mediation D 1. The mediation effect was also more pronounced in basic materials (.28) and the healthcare sectors (.25). The proportion mediated in high-HDI countries was small (.07) (Table 8). Individualism (INDM). INDM showed a positive re- lationship with performance, which indicates that an increase in INDM corresponds with a greater prob- ability that the company will experience positive growth (Table 6). INDM had a positive relationship with ESG, but the strength of the relationship was relatively very weak (Table 7), showing no signicant variation across sectors of low- and high-HDI coun- tries (Table 10). Sustainability weakly mediated the relationship between INDM and CFP; the mediation effect was more emphatic in healthcare (.62) and tech- nology (.54). See Table 8. Monumentalism (MON). Monumentalism (MON) did not have a statistically signicant relationship with CFP (Table 6). MON had a positive relationship with ESG. The relationship, however, was the weakest compared with the other cultural variables, showing no signicant variation across sectors of low- and high-HDI countries (Table 10). Sustainability very weakly mediated the relationship between MON and CFP , but the mediation effect was noticeable in healthcare (.46) and technology (.21) (Table 8). 3.2 Institutional Theory model The Institutional Theory model employed ANOVA to determine the differences between high- and low- performing cultural subgroups of the dataset. The summary of interaction effects was determined for the holistic model and is provided in Table 11. The covariates ESG and HDI did not have an indi- vidual effect on the performance of the companies, but they did have an effect on the performance of the company in interaction with sector and culture, highlighting the role and interactive effects of signi- cant culture dimensions in the process through which sustainability produces CFP . A signicant effect was observed for interactions between ESG IND Table 11. Summary of ANOV A. Pr(>F) Means adjusted for ESGCombined 0.3583 IND 0.0000 ESG, HDI MAS 0.1987 UA 0.0000 ———- LTO 0.0000 ESG, HDI INDULGE 0.5227 MON 0.0000 ———- PD 0.0042 ———- INDM 0.0000 ESG, HDI HDI2019 0.1314 ESGCombined:IND 0.4727 ESGCombined:MAS 0.2374 ESGCombined:UA 0.6605 ESGCombined:LTO 0.0009 ESG, HDI ESGCombined:INDULGE 0.1585 ESGCombined:MON 0.6632 ESGCombined:PD 0.5646 ESGCombined:INDM 0.0076 ESG, HDI IND:HDI2019 0.0046 ESG, HDI MAS:HDI2019 0.1153 UA:HDI2019 0.0077 HDI LTO:HDI2019 0.1934 INDULGE:HDI2019 0.5048 MON:HDI2019 0.3361 PD:HDI2019 0.0000 HDI INDM:HDI2019 0.0012 HDI, ESG ESGCombined:IND:Sector 0.0000 ESG, HDI ESGCombined:Sector:MAS 0.0691 ESG ESGCombined:Sector:UA 0.9575 ESGCombined:Sector:LTO 0.1092 ESGCombined:Sector:INDULG 0.5398 ESGCombined:Sector:MON 0.112 ESGCombined:Sector:PD 0.1963 ESGCombined:Sector:INDM 0.671 IND:Sector:HDI2019 0.0276 ESG, HDI Sector:MAS:HDI2019 0.3714 Sector:UA:HDI2019 0.8649 Sector:LTO:HDI2019 0.0126 ESG, HDI Sector:INDULGE:HDI2019 0.0403 HDI Sector:MON:HDI2019 0.294 Sector:PD:HDI2019 0.7961 Sector:INDM:HDI2019 0.6894 Signicant at 5% of the error. sector, ESG MAS sector, HDI IND sector, HDI LTO sector, and HDI INDULGE sector. In order to better understand these signicant interac- tions, Tukey contrasts were used with means adjusted by the HDI and ESG covariates, with the aid of the emmeans statistical software package. For the Tukey test analysis, rms in each cul- tural dimension were split according to high, middle, and low groups based on cultural score. The top- scoring 33 percentiles were high, percentiles 33–66 were middle, and the bottom 33 percentiles were low. Results indicated that the variables UA, PD, IND, LTO, INDM, and MON had a signicant direct ef- fect on the company’s performance, addressing the relationship between culture and CFP . In order to ECONOMIC AND BUSINESS REVIEW 2024;26:61–80 73 determine the differences in CFP between the high, middle, and low cultural groups, the dataset was also split by CFP , where group a represented the high- est average CFP , and group c represented rms with the lowest average CFP . Group b represented rms achieving a CFP that was neither high nor low, rel- ative to each other. Results of the Tukey tests, which analysed signif- icant interaction effects by sector on the adjusted CFP means of rms, fall within a relatively narrow range between 0.01% and 0.34%. The average means for the technology sector, however, ranges between 11.92% and –48.37%. The variance can be attributed to disproportionate investment money ows into the technology sector, which for the past decade have pro- vided stock-exchange investors with the best growth opportunities. The variance is also explained in the context of the size of the rms dominating the sector, including Facebook, Amazon, Netix, and Google. 3.2.1 Culture interaction effects LTO and INDM had signicant interaction effects with ESG in producing CFP . Moreover, the results of ANOVA in Table 11 and the subsequent Tukey tests for IND, MAS, and LTO (Table 12) show that the inter- action with ESG creates signicant differences in CFP between high and low groups of these dimensions. ESG performance explains the propensity for IND, MAS, and LTO to produce CFP across sectors, but it does not explain or mediate the relationships of PD, UA, INDULGE, MON, and INDM with CFP . The results support conrmation of the null hy- pothesis (H4 0 ): From the perspective of Institutional Theory, the sustainability practices of a rm do not mediate the relationship between culture (i.e., dimen- sions of low power distance, low UA, individualism, femininity, LTO, indulgence, femininity [Minkov], and monumentalism) and nancial performance of the rm. ANOVA, reected in Table 11, and Tukey test in Table 13 indicated that the variables UA, PD, IND, LTO, INDM, and MON had a signicant effect on CFP and that signicant differences were evident in Table 13. Tukey test showing culture as a predictor of CFP . Level UA MON PD INDM IND LTO HIGH 2.26a 0.56b 2.50b 1.38a 3.01b 6.12c MIDDLE 4.89c 0.18a 1.19a 2.68c 4.97c 0.96b LOW 3.61b 5.50c 2.54b 2.18b 1.74a 0.83a CFP between high and low groups of these cultures. This supports the rejection of the null hypothesis and acceptance of the alternative hypothesis H4(i a ): There are statistically signicant differences in the nancial performance of high versus low cultural groupings of rms. The Tukey tests for IND, MAS, and LTO (Table 12) with means adjusted by ESG show signicant differ- ences in CFP between high and low groups of these dimensions, indicating that low and high groups per- form differently with means adjusted for ESG and thus that sustainability is valued differently by low and high cultural groups. There is sufcient evidence to reject the null hypothesis and afrm the alternative hypothesis H4(ii a ): There are statistically signicant differences in the value that is placed on the sustain- ability practices of high versus low cultural groupings of rms. A comparison of the Tukey test results for the cultural dimensions that had signicant interaction effects with ESG and sector, namely IND, MAS, and LTO (Table 12), shows that the average sum of the CFP medians, across all sectors excluding technology, varies between the high, medium, and low groups within the three cultural dimensions. When IND is high, CFP is highest (0.20). When IND is low, CFP is lowest (0.045). When MAS is high, CFP is high (0.10). When MAS is low, CFP is equally highest (0.20). When LTO is high, CFP is low (0.14), and when LTO is low, CFP is higher (0.17). This indicates that high IND places a higher value on sustainability than low IND and that low MAS places a higher value on sustain- ability than high MAS. Evidently, individualism is related to ESG producing CFP , and collectivism is less responsive to or valuing of ESG. In addition, low mas- culinity or femininity is rewarded with comparatively Table 12. Tukey tests for IND, MAS, and LTO. IND MAS LTO Sector Low Middle High Low Middle High Low Middle High Healthcare 0.26a 0.25a 0.09b 0.17a 0.18b 0.25a 0.14a 0.22a 0.23b Basic materials 0.34a 0.30a 0.07b 0.17a 0.22b 0.32a 0.17a 0.25a 0.29b Financials 0.12a 0.14a 0.07b 0.08a 0.10b 0.14a 0.14a 0.06a 0.13b Industrials 0.18a 0.19a 0.05b 0.09a 0.13b 0.20a 0.16a 0.10a 0.17b Consumer non-cyclicals 0.22a 0.11a 0.01b 0.09a 0.07b 0.18a 0.13a 0.12a 0.09b Consumer cyclicals 0.13a 0.16a 0.02b 0.05a 0.05b 0.16a 0.15a 0.01a 0.11b Technology 22.34b 35.92b 11.92a 0.61b 2.64a 48.37b 43.69b 7.47b 4.82a 74 ECONOMIC AND BUSINESS REVIEW 2024;26:61–80 higher CFP . The differences in CFP , adjusted for ESG and HDI, between high, middle and low LTO groups is marginal overall, and the overall pattern does not hold for rms in the nancial, consumer non- cyclicals, and consumer cyclicals sectors. There is a signicant relationship between high- sustainability-valuing cultures, for example, individ- ualism in rms, and CFP . Conversely, there is a signicant relationship between low-sustainability- valuing cultures, such as masculinity, and CFP . There is sufcient evidence to reject the null hypotheses and approve the alternative hypotheses: H4(iii a ). There is a positive and statistically signicant relationship between the sustainability practices and the nancial performance of rms that have cultures highly valuing sustainability. H4(iv a ). There is a positive and statistically signicant relationship between the sustainability practices and the nancial performance of rms that have cultures that do not value sustainability. 4 Discussion of results In the process of answering the primary questions, the study has provided insights into the relationships between culture and CFP and culture and sustainabil- ity, measured by ESG. 4.1 NRBT approach 4.1.1 Socio-economic development and sector effects on sustainability Results point to the afrmation of socio-economic development of the country in which rms operate inuencing rm sustainable use of resources. In test- ing for the effects of HDI on ESG, the regression performed determined that HDI was a positive sig- nicant predictor of ESG sustainability (B D 25.527, SED 0.546, tD 46.722, sD 0). The strength of the relationships between the cultural dimensions and sustainability, measured by ESG, of rms operational in low- versus high-HDI countries is summarised in Table 14. It is noteworthy that the inuence of culture or the values held by societies is substantially higher on rm sustainability performance in high HDI countries. This nding supports the Kuznets effect (Özokcu & Özdemir, 2017). During earlier stages of socio- economic development in a country, for example, environmental harms are higher, but as development and afuence reach a certain point, markets place a higher value on the natural environment. The shared interest in quality-of-life enhancement, expressed as Table 14. Beta coefcients showing comparative strength of relationships between culture and ESG for rms in high- and low-HDI countries. LOW HIGH PD 0.016 0.235 IND 0.016 0.043 MAS 0.011 0.106 UA 0.009 0.104 LTO 0.014 0.171 INDULGE 0.16 0.225 INDM 0.004 0.057 MON 0 0.065 consumer demand for sustainable products and so- cial equity, will lead to added pressure on rms to invest their resources more sustainably. The impact of indulgence (INDULGE) in rms, which is the extent to which a society allows relatively free gratication of basic and natural human desires related to enjoy- ing life and having fun, highlights an anomaly. Firm sustainability performance is substantially lower in high-HDI than low-HDI countries that are higher in indulgence versus restraint, suggesting that soci- eties high in indulgence (INDULGE) that are more socio-economically developed, such as the USA, in fact place a lower value on sustainability. These so- cieties place a higher value on and have the means to give expression to freedom and gratication, unfet- tered by strict norms and regulations. High-HDI and high-restraint countries like South Korea, however, value sustainability more highly and exert pressure on rms to align their operations with this value. The value of sustainability is diminished or neutralised in countries which are high in restraint, China and India being examples, as a result of their lower level of socio-economic development. The results of this study show that the value of the HDI, according to which a country can be classied on a continuum between poorly and highly developed, is signicantly related to sustainability performance of rms. 4.1.2 Culture and CFP There is a statistically signicant relationship be- tween both Hofstede’s and Minkov’s culture dimen- sions applied at rm level and CFP . The relationships between each independent variable and CFP are, however, weak. The NRBT model fails to explain the meaningful inuence of culture on CFP , despite being statistically signicant. The same pattern of results was evident for rms operating in countries charac- terised by either high or low HDI, suggesting that the relationship between culture and CFP is not in- uenced by levels of socio-economic development. The pattern of results also did not differ at a sec- toral subgroup level, with the beta coefcient for each ECONOMIC AND BUSINESS REVIEW 2024;26:61–80 75 signicant dimension being marginal for basic ma- terials, consumer cyclicals, consumer non-cyclicals, nancials, healthcare, industrials, and technology. NRBT, in the context of the study, provides sufcient evidence of the role of culture as a resource or capabil- ity in producing SCA. It also, however, highlights the relatively weak nature of the direct relationship and indicates that the relationship between culture and CFP may not be linear. 4.2 Institutional Theory model 4.2.1 Culture and CFP From the Institutional Theory perspective, em- ploying ANOVA in testing uncertainty avoidance (UA), monumentalism (MON), power distance (PD), Minkov et al.’s individualism (INDM), Hofstede’s in- dividualism (IND), and long-term orientation (LTO) had a signicant direct effect on CFP in the holistic model. The subsequent Tukey tests reected CFP with means adjusted for socio-economic development, measured by HDI, and sustainability, measured by ESG. Viewing culture by disaggregating the dataset into high, middle, and low groups exposed the sub- stantial inuence of culture on CFP , which the NRBT model was unable to do. The wide variance in aver- age CFP performance between high- and low-culture groups indicates the strength of culture’s inuence, interacting together with ESG and HDI on a rm’s CFP measured as average percentage change in share price over ve years displayed in Table 14. In the context of understanding the inuence of culture on CFP , the Institutional Theory mediation model pro- vided robust and signicant outcomes. Institutional Theory’s focus on how culture is created at subgroup level, and how various and specic institutions in- uence this, provides sustainability researchers, in particular, with a richer context through which to make analyses. The view of culture as a resource ap- plied universally within the NRBT mediation model was less effective in explaining culture’s inuence. This thesis has provided pioneering evidence that cul- ture is an antecedent of sustainability and that culture and sustainability work together or complementarily to produce CFP . Moreover, as Institutional Theory is more focussed on the levers and mechanisms around isomorphism and legitimacy than value capture, it is interesting that the analysis powerfully demonstrates gains in CFP for groups of rms that seek legiti- macy by aligning their operations, and particularly sustainability performance, with the culture of their markets. With respect to the relationship between culture and CFP , the model also showed signicant interac- tion effects between HDI IND sector, HDI Table 15. Summary of differences in relationships between high- and low- culture groups and CFP . Variance in CFP of When::: Is::: CFP is::: high and low groups UA High Higher (2.26%) 5.87% Low Lower ( 3.61%) IND Low Higher (1.74%) 4.75% High Lower ( 3.01%) LTO Low Higher (0.83%) 6.95% High Lower ( 6.12%) INDM High Higher ( 1.38%) 0.80% Low Lower ( 2.18%) MON Low Lower ( 5.50%) 4.94% High Higher ( 0.56%) PD Low Lower ( 2.54%) 0.04% High Higher ( 2.50%) LTO sector, and HDI INDULGE sector, sug- gesting, in line with the regression analysis, that socio-economic level and sector are noteworthy inu- ences on the relationship between culture and CFP . 4.2.2 Culture and sustainable use of resources With respect to the relationship between culture and CFP , the Institutional Theory model also showed signicant interaction effects between ESG IND sector, ESG sector MAS, sector LTO HDI, and sector INDULGE HDI. For the purposes of relating culture’s interaction with ESG in producing CFP , only the interactions which were signicant with ESG, and reected in the Tukey tests described in the results section, are discussed now. A summary of these is depicted in Table 16. The ANOVA highlights the signicance of IND, MAS, and LTO in sustainability. The regression analysis shows that masculinity is negatively related to ESG and does not have a statis- tically signicant relationship with CFP . The ANOVA and subsequent Tukey test identify, in addition, that when masculinity interacts with ESG and sector, higher levels of MAS produce only half of the CFP that more feminine cultures produce. Masculinity is associated with reduced CFP with means adjusted for ESG. Evidence then supports the mediation or Table 16. Summary of differences in relationships between high and low culture groups and CFP (extracted from Tukey tests). Average difference in CFP CFP , means (means) between high and adjusted for low culture groups, for When::: Is::: ESG, is::: all sectors except technology IND High Higher (0.208) 0.163% Low Lower (0.045) MAS High Lower (0.10) 0.10% Low Higher (0.20) LTO High Lower (0.148) 0.022% Low Higher (0.170) 76 ECONOMIC AND BUSINESS REVIEW 2024;26:61–80 interaction effect of sustainability on the relation- ship between masculinity and CFP . The ndings of this thesis pertaining to masculinity’s negative rela- tionship with sustainability support previous studies, including Husted (2005) and Cox et al. (2011), who found that masculine values lead to lower levels of responsiveness to environmental problems, as well as Vachon (2010), who linked masculinity to capitalism, which does not typically advocate social justice and environmental concern. Sumantri (2017) and Tsoy and Yongqiang (2016) found the same relationship between masculinity and sustainability at a country level, supporting the results of this thesis that cul- tures characterised by masculinity place less value on sustainability. The difference in performance between high and low Individualism (IND) groups shows that when ESG interacts with IND, higher levels of IND produce signicantly higher CFP than low groups. The Tukey test supports and amplies the statistically positive relationship between IND and sustainability reected in the regression analysis. In nancials, industrials, and consumer cyclicals, the middle group performs marginally better than the high group, but the differ- ence between the high and low groups is satisfactory proof that higher IND works with ESG to produce CFP . These ndings contrast with Ringov and Zollo (2007) and Park et al. (2007), who reported no signi- cant relationship between individualism and sustain- ability performance. These ndings, however, sup- port the outcomes of research by Husted (2005) and Cox et al. (2011), which found a positive relationship between higher-level individualistic culture and sus- tainability development performance and research, showing that individualism was related to high lev- els of corporate environmental disclosure (Luo & Tang, 2016; Once & Almagtome, 2014). The positive relationship between individualism and sustainabil- ity or CSEP (which emphasises care for people and environment) seems paradoxical, given that individ- ualist societies’ behaviours are based on individual preferences, personal goals, motivations, and desires, which are considered more important than those of the group. The relationship may be explained, how- ever, in individualism/collectivism scores’ strong correlation with national wealth. Wealth tends to lead to individualism (Hofstede, 2001, p. 253) and ensures that members of society can afford to pur- sue personal goals and desires—beyond more ba- sic needs—which will include processes and prod- ucts presented by rms that support sustainability, even if they are more costly. Moreover, as Husted (2005) noted, environmental activism might be more widespread in individualistic cultures compared to collective cultures, which suggests that individual- istic cultures have a better social and institutional capacity to respond to environmental degradation problems. The results presented in this thesis for individu- alism require specic attention, given the particular attention this dimension has received in academia and the correlations with several other conceptual- isations of national culture. These include GLOBE, Trompenaars, and the World Values Survey. For LTO in general, higher-LTO rms perform worse than low-LTO rms. From a sectoral perspec- tive, this is evident in healthcare, basic materials, and industrials. Higher-LTO rms, however, perform better than low-LTO rms in nancials, consumer cyclicals, and consumer non-cyclicals. This could be attributed to the nature of these sectors, being more competitive and accessible to scrutiny of a large per- centage of stakeholders. Healthcare, basic materials, and industrials provide more specialised, primary products less prone to competitive forces that would warrant greater attention to societal perception. To complicate the relationship between LTO and CFP— taking into account the interaction of ESG—, in some instances the middle LTO group performs the worst. For example, the middle group signicantly under- performs in nancials, industrials, and consumer cyclicals. The underperformance of rms that are neither high nor low may indicate a misalignment between these rms’ investment or non-investment in sustainable operations and the expectations of the institutions in the markets in which they operate. Firms that take neither a long-term or short-term ap- proach give consumers and investors little incentive for support. LTO or long-termism may even be more acceptable to stakeholders expecting a short-term re- turn than a muted or confused market strategy that is proverbially sitting on the sustainability fence and which is unlikely to produce neither solid future re- turns nor sterling short-term returns. Cultural dimensions, both Hofstede’s and Minkov’s, were included as independent variables. While Hofstede’s dimensions had statistically signicant relationships with both ESG and CFP , only Minkov’s individualism (INDM) was statistically signicant on CFP in the regression analysis. Moreover, Minkov’s dimensions showed a signicantly weaker inuence on ESG scores in the regression analysis. This was supported in the ANOVA, where there were no signicant interaction effects with ESG on CFP . ANOVA and subsequent Tukey tests do show, however, that Minkov’s INDM and MON had direct effects on CFP . In the context of the above, Minkov’s dimensions may be less suited to research on culture and sustainability as Hofstede’s and do not provide comparability at this stage. ECONOMIC AND BUSINESS REVIEW 2024;26:61–80 77 4.3 NRBT and Institutional Theory models The NRBT approach to the model, which exam- ined relationships between the variables in the dataset through regression analysis, proved effective in deter- mining the direct relationships between one variable and another. The model provided sufcient evidence of the inuence of sector and socio-economic devel- opment on the sustainability performance of rms. Testing for mediation, it was also able to successfully calculate the proportion of the relationship between culture and CFP that was mediated by sustainability. While the calculation of odds ratios (OR) assisted in determining the degree of likelihood that the effect would produce a nancial outcome in either direc- tion, the model could not calculate or estimate the real impact of the relationships on CFP . The results pertaining to the relationship between culture and CFP , however, support RBT literature, which pro- poses culture as a signicant internal resource that rms can leverage for SCA. The model also supports rms’ sustainable use of resources, or sustainability as a resource, by proving that sustainability mediates the relationship between culture and CFP to varying degrees. The Institutional Theory approach to the model, which examined the relationships between high and low groups of the variables in a single, integrated, and holistic model, was effective at simultaneously iden- tifying multiple interactions between the variables on CFP impact. While more complex to interpret, the re- sults provide a better overall perspective of the full range of culture, ESG, HDI, sector, and CFP inter- actions without detailing the impact of one selected variable on another. Both approaches showed that there is a direct re- lationship between culture and CFP , which supports this study’s unique hypothesis that sustainability can be operationalised as a mediator in the CSEP–CFP discussion. The results support the view that culture is an antecedent of sustainability and that sustain- ability mediates the relationship between culture and CFP . Both approaches showed that ESG, sector, and HDI interact in producing CFP . The results also con- rm the premise of Institutional Theory that rms adopt the culture of their country of operations by investing in sustainability to the extent that the in- stitutional culture, which is also the national culture, legitimises it. Achieving legitimacy supersedes the imperative of capturing value, according to Institu- tional Theory. The results of the ANOVA and Tukey test, however, suggest that aligning sustainability with national culture produces nancial returns too. The results conrm that certain cultures place a higher value on sustainability than others. The regression analysis shows, for example, that higher-INDULGE and -MAS cultures have a stronger negative rela- tionship to sustainability. The greater the level of MAS and INDULGE, the lower the odds of the company experiencing positive nancial growth. The Tukey tests examining the differences in CFP of high and low groups in these two cultural dimen- sions show that low-INDULGE rms outperform high-INDULGE rms in low-sustainability-valuing cultures. The same pattern is maintained for low- MAS or feminine rms who signicantly outperform high-MAS rms in cultures less valuing of sustain- ability, such as MAS cultures. The principle was observed also in cultures that place a higher value on sustainability, for example, individualistic societies, indicated by a positive relationship with ESG in the regression and mediation analyses. Firms in the high IND group substantially outperformed rms in the lower IND group. While LTO was positively related to ESG in the regression and mediation analyses, rms across high and low levels of LTO showed conicting nancial performance. It was expected that high-LTO rms would outperform low-LTO rms across the board, but this was only evident in three of the six sectors compared, namely nancials, consumer non- cyclicals, and consumer cyclicals. Lower-LTO rms achieved higher nancial performance in healthcare, basic materials, and industrials. This could be as- cribed to the nature of products and services offered by rms. Apparently, the sectors in which individ- ual consumers are most participative and in which rms are most publicly visible, such as nancials, con- sumer non-cyclicals, and consumer cyclicals, are most aligned with general national cultural expectations. The idea that culture works together with sustain- ability to produce rm CFP supports RBT-related work on resource complementarity. Complementar- ity occurs when the benets from one resource are leveraged by the presence of another (Morgan et al., 2009). Moreover, Kozlenkova et al. (2014) assert that complementarity also applies when externally fo- cused market-based resources are complemented by internal resources to generate greater benets. This study nds positive synergies between cultural orien- tation or culture (external market-based resource) and sustainable use of resources (internal resource). Both resource intangibility and resource complementarity, in addition to the obvious benet of producing larger synergistic effects than a single resource, make imi- tation more difcult for competitors because causal ambiguity exists, meaning competitors cannot easily discern which resources are responsible for generat- ing advantages (Kozlenkova et al., 2014). As much as 70% of a rm’s market value could emanate from 78 ECONOMIC AND BUSINESS REVIEW 2024;26:61–80 its intangible resources (Capraro & Srivastava, 1997), and organisational performance increasingly seems tightly connected to intangible resources. Particularly this thesis has provided evidence of complementarity between culture and sustainability. 5 Conclusion Through the representation of two modelling ap- proaches, namely regression and ANOVA of NRBT and Institutional Theory, respectively, this study has answered the primary research question. NRBT and Institutional Theory do not provide mutually exclu- sive nor superior explanations for the relationship between culture and a rm’s nancial performance being mediated by sustainability (i.e., its approach to the use of its resources in a sustainable or un- sustainable way). Both support sustainability and its antecedent culture as means of generating either re- turns or legitimacy. It was initially considered that Institutional Theory would better explain the rela- tionship between culture, sustainability, and CFP in the absence of evidence of nancial returns. Institu- tional Theory’s emphasis on rms’ efforts to secure legitimacy in their markets, even at the expense of CFP , would at least show alignment between rm and national culture. The differences in relationships between the culture and sustainability of subgroups alone would have added signicant value. The results of ANOVA, which was aligned with Institutional The- ory’s focus on how culture is manifest in or between subgroups, however, show signicant evidence of CFP resulting from the relationship between culture and sustainability. Consequently, from an Institu- tional Theory perspective, it can be deduced that in striving for legitimacy, rms achieve CFP through sustainability, even if their primary motivation for sustainability may not have been monetary. Equally, from an NRBT perspective, rms that invest in the sustainable use of resources to achieve CFP unlock the associated resource of culture’s ability to produce CFP . A limitation of this study has been the use of two modelling approaches for the two theories. Now that the complementarity of the theories has been demonstrated, future research can build a combined and more comprehensive model and test its good- ness of t. Such future studies could also incorporate variables such as rm size, labour size, and aspects of regional and intranational cultures, which exist (Li et al., 2013). Future research could also opera- tionalise the variables used here in more focussed studies on geographically dened samples to test the relationships investigated in specic cultural or geographic environments, which will contribute to praxis. Finally, for effective, comparative enquiry into cross-cultural studies to be undertaken, national cul- ture variables must become a focus of analytical inter- est. This will also enable corporate leaders to optimise their investments in sustainability—particularly in the burgeoning area of ESG reporting. 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