Terrorist attacks and environmental social and governance performance: Evidence from cross‐country panel data

Abstract

AbstractThis study is motivated by the absence of similar research that investigates the link between terrorism level and social and environmental performance measured by the ESG score. This study adopts cross‐country panel data represented by 5082 worldwide companies during the period 2011 to 2020. The terrorism level has been measured using the Global Terrorism Index as reported by The Institute for Economics and Peace Limited. Our findings indicate that the occurrence of terrorist events has a significant negative impact on ESG performance, both collectively and individually, due to the various consequences. Many businesses may suspend operations in countries where the threat of terrorism is increasing, resulting in a flight of investors and the disruption of development projects, which may weaken overall economic performance and voluntary projects. Thus, it is likely to result in undermining companies' environmental and social practices. In addition, as fears of terrorist attacks grow, the general system of corporate governance may deteriorate, halting sustainable development initiatives in these countries. Terrorist attacks introduce complex moral dilemmas, challenge stakeholder priorities, affect a company's legitimacy, and reshape the institutional landscape. Companies must navigate these multifaceted challenges, balancing immediate stakeholder concerns, reputation restoration, compliance obligations, and evolving societal expectations. Our findings are significant, with numerous implications for different stakeholders such as regulators, policymakers, investors, managers, and government agencies.