Capital expenditure and sustainability performance among listed firms in Ghana: the mediating role of ESG disclosure quality

Abstract

The study investigates the relationship between capital expenditure, ESG disclosure quality, and sustainability performance, with a particular focus on the mediating role of ESG disclosure quality. The data cover 18 firms listed on the Ghana Stock Exchange from 2010 to 2024. The study utilizes the two-step System GMM and Sobel test mediation approach to analyze the study objective. The results reveal a positive and statistically significant association between capital expenditure and sustainability performance, as well as between capital expenditure and ESG disclosure quality. ESG disclosure quality is, in turn, positively associated with sustainability performance, and the Sobel test confirms a statistically significant indirect effect, supporting partial mediation. These findings extend stakeholder theory by alluding that capital budgeting decisions, not only disclosure practices, may serve as a channel for stakeholder responsiveness, and contribute to legitimacy theory by signifying that investment activity and ESG communication are statistically connected rather than independent legitimation strategies. The findings suggest that corporate entities should invest more in sustainability efforts and report on ESG issues transparently and credibly to achieve the best sustainability results. In conclusion, the study underscores the need for financial investment in sustainability and effective communication via ESG disclosures, offering insights for corporate managers and policymakers in Ghana to boost corporate sustainability practices and strengthen ESG reporting standards.