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Complex Firms, Controversial Outcomes: Global Evidence on ESG Failures and Remedies
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Ali Uyar ,
Nejla Ould Daoud Ellili,
Abdullah S. Karaman
Business Strategy and the Environment
Swansea University Author:
Tunyi Tunyi Abongeh
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© 2026 The Author(s). Business Strategy and the Environment published by ERP Environment and John Wiley & Sons Ltd. This is an open access article under the terms of the Creative Commons Attribution License.
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DOI (Published version): 10.1002/bse.70685
Abstract
We examine whether business complexity increases firms' exposure to negative environmental, social, and governance (ESG) outcomes, specifically ESG controversies, using a global panel of firms from 37 countries over the period 2002–2021. We further investigate the moderating roles of external m...
| Published in: | Business Strategy and the Environment |
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| ISSN: | 0964-4733 1099-0836 |
| Published: |
Wiley
2026
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| Online Access: |
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| URI: | https://cronfa.swan.ac.uk/Record/cronfa71395 |
| Abstract: |
We examine whether business complexity increases firms' exposure to negative environmental, social, and governance (ESG) outcomes, specifically ESG controversies, using a global panel of firms from 37 countries over the period 2002–2021. We further investigate the moderating roles of external monitoring by financial analysts; internal governance mechanisms, including board independence and workforce gender diversity; and international policy frameworks, with particular emphasis on the Paris Agreement as a regulatory tightening mechanism. Our results show that business complexity is strongly and positively associated with ESG controversies worldwide. Analyst scrutiny amplifies, rather than mitigates, this effect, indicating that external capital market monitoring does not effectively discipline ESG risk in complex firms. In contrast, stronger internal governance, reflected in greater board independence and a higher proportion of female employees, significantly attenuates the complexity controversy link. We also find that the positive effect of complexity on ESG controversies weakens in the post-Paris Agreement period, consistent with heightened regulatory pressure and compliance expectations imposed on firms following the Agreement. Overall, the study provides novel cross-country evidence on how organizational structure shapes negative ESG outcomes, integrating insights from complexity and agency theories with important implications for managers, policymakers, and investors. |
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| Keywords: |
analyst scrutiny, business complexity, ESG controversies, internal governance mechanisms, Paris Agreement, workforce gender diversity |
| College: |
Faculty of Humanities and Social Sciences |
| Funders: |
Swansea University |