Corporate Environmental Accountability, Institutional Quality, And Trade Openness On Financial Performance: The Mediating Role Of Digital Transformation

Abstract

This study focuses on how corporate environmental accountability, institutional quality, and trade openness affect financial performance of developed economies through digital transformation, which acts as a mediating variable. The study is based on a pooled Ordinary Least Squares (OLS), Fixed Effects (FE) and Random Effects (RE) estimates using a balanced panel dataset of 44 high-income economies with eight geographic regions aided across 2015-2024 in case of offering strong empirical evidence and internally consistency. The environmental accountability of the proxies CO₂-emission per capita is the proxy of the institutional quality of trade, the Rule of Law index, and the trade as a percentage of the GDP, the proxy of the trade openness. The mediators in digital transformation are fixed broadband subscriptions per 100 people and gross domestic savings as a percentage of GDP is financial performance. The suitability of the use of fixed effects with panel-corrected standard errors as an ideal specification is verified by diagnostic tests. The findings indicate that the CO2 emission would have a negative and substantial influence on financial performance with institutional quality and trade openness showing important positive outcomes. Imperatively, the digital transformation partially embodies all the three relationships as it acts as an amplification channel that boosts the institutional and trade returns to the accumulation of savings and at the same time combats the savings-degrading impacts of environmental degradation. The article appeals to the extant literature on environmental-economic performance studies to the macro-level panel setting and offers a practical policy advice to high-income economies in going through the two transitions, namely, decarbonization and digitalization.

Keywords : Environmental Accountability; CO2 Emissions; Institutional Quality; Rule of Law; Trade Openness; Digital Transformation; Financial Performance; Panel Data; Developed Economies

JEL Classification: Q53; K40; F14; O33; C23; G10