Corporate Governance Impact on Economic Sustainability Practices during the Covid-19 Pandemic: the Mediating Role of Trust

Goh, Samantha Shi En (2022) Corporate Governance Impact on Economic Sustainability Practices during the Covid-19 Pandemic: the Mediating Role of Trust. Final Year Project (Masters), Tunku Abdul Rahman University College.

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Abstract

In recent years, corporate sustainability has become increasingly important due the current global context where there are immense challenges in terms of environmental, social and economic aspects. Unfortunately, the outbreak of the Covid-19 pandemic has posed unbridled uncertainties and risk that have raised challenges and threatened the economy. As the economic condition is influenced by the stability of functioning corporations, corporate governance plays a significant role in ensuring sound structures and processes are in place. Although past studies have found the relationship between corporate governance and economic sustainability to be positive, the concept of corporate governance was only studied from a generic perspective. However, the Malaysian Code on Corporate Governance (MCCG) provides three key principles to achieve sound corporate governance (i.e. board leadership, risk management and stakeholder engagement). Besides that, trust is found to be interconnected to corporate governance. Past studies have found that employees in companies that cultivate trust have a comparative advantage and fare better as opposed to companies that do not. On top of that, it was also found that trust is a crucial element in managing fear and uncertainty during a crisis. Therefore, the objectives of this research is to access the impact of the three corporate governance principles (i.e. board leadership, risk management, and stakeholder engagement) on economic sustainability, the mediating effect of trust in the relationship between the three corporate governance principles and economic sustainability, as well as the relationship between trust and economic sustainability, from the perception of employees. The research adopts the quantitative research method with a cross-sectional design and online survey method for data collection. A total sample of 250 was collected from employees who are currently working in Malaysia and the data collected were analysed using the SPSS and SmartPLS software. The findings revealed significant positive relationships between the three corporate governance principles (i.e. board leadership, risk management, and stakeholder engagement) and economic sustainability, as well as in the relationship between trust and economic sustainability. As for the mediating hypotheses, trust partially mediates the relationship between risk management and economic sustainability, as well as stakeholder engagement and economic sustainability. It was revealed that, trust does not mediate the relationship between board leadership and economic sustainability. This research study has contributed to the corporate governance and sustainability literatures, as well as provides a deeper understanding on the significance of trust in the relationship with internal and external stakeholders. Furthermore, this research have highlighted the importance of having sound governance structure and principles in place, which includes board leadership, risk management and stakeholder engagement, to enhance corporate performance and contribute to economic sustainability.