The Influence of Environmental Governance and Ownership Structure on Ease of Corporate Financing: Evidence from Iran

This study investigates the joint role of environmental governance mechanisms and ownership structure in shaping corporate financing constraints within Iran’s emerging market. Using panel data from 128 firms listed on the Tehran Stock Exchange from 2016 to 2024, the research employs panel quantile regression with fixed effects and a panel Granger causality test. Financing constraints are measured via the Kaplan–Zingales (KZ) index, while the environmental governance index is constructed using principal component analysis, incorporating dimensions such as sustainability committees, reporting, expenditures, and quantitative targets. Ownership dynamics are captured through concentration, institutional, state, and balanced ownership.Descriptive statistics reveal substantial heterogeneity in financing constraints, with the average environmental governance index reflecting moderate implementation among Iranian firms. Diagnostic tests—including the Hausman test and checks for heteroscedasticity and autocorrelation—confirm the models’ reliability. The quantile regression results indicate that environmental governance has a negative, statistically significant impact across all quantiles, with a stronger mitigating effect in firms facing severe financing constraints. While ownership concentration exacerbates these constraints, its interaction with environmental governance significantly weakens this adverse effect. Furthermore, institutional ownership, both directly and through interaction, contributes to alleviating financing constraints. The Granger causality test confirms a unidirectional causal link from improved environmental governance to reduced financing constraints. Sensitivity analyses using the SA index and GMM further validate these findings. Ultimately, this study suggests that strong environmental governance acts as a positive market signal by reducing information asymmetry, while ownership structure plays a critical moderating role, highlighting the importance of integrating ESG principles into corporate strategies for enhanced financial accessibility.
 
 
Extended Abstract
Introduction
Emerging markets such as Iran face severe financing constraints due to structural inefficiencies, high information asymmetry, and institutional risks. This study examines whether strengthening environmental governance can serve as a positive market signal and facilitate access to external financing, as well as how four dimensions of ownership structure—ownership concentration, institutional ownership, government ownership, and ownership balance—moderate this relationship. The novelty of this research lies in four main contributions. First, it develops a multidimensional composite index of green governance tailored to Iran’s institutional context. Second, it simultaneously examines the moderating role of four dimensions of ownership structure. Third, it employs panel quantile regression to identify heterogeneous effects across different levels of financing constraints. Finally, it uses a panel Granger causality test to determine the direction of causality.
 
Method
In terms of purpose, this is an applied study. Methodologically, it adopts a descriptive-correlational design with a causal-comparative (ex post facto) approach. The study population consisted of all companies listed on the Tehran Stock Exchange. After applying the screening criteria—including a fiscal year ending on March 20, listing on the exchange by March 2016, no changes in the fiscal year, exclusion of financial firms and holding companies, and data availability for the entire study period—the final sample consisted of 128 companies from 8 industries over the 2016–2024 period, yielding 1,152 firm-year observations. The dependent variable, financing constraints, was measured using the Kaplan and Zingales (KZ) composite index. The main independent variable, the green governance index, was constructed using principal component analysis (PCA) based on four dimensions: the existence of a sustainability committee, sustainability reporting, environmental expenditure intensity, and the existence of quantitative environmental targets. Ownership structure dynamics were captured using four variables: ownership concentration (the percentage of shares held by the three largest shareholders), institutional ownership (the percentage of shares held by institutional investors), government ownership (a dummy variable equal to 1 when government shareholding exceeded 50%, and 0 otherwise), and ownership balance (the inverse of the Herfindahl–Hirschman Index). Control variables included firm size, firm age, financial leverage, profitability, sales growth, growth opportunities, the inflation rate, and GDP growth rate. For model estimation, fixed-effects panel quantile regression using the penalized approach of Koenker and Machado was employed at five quantiles (10th, 25th, 50th, 75th, and 90th). To test causality, the Dumitrescu–Hurlin panel Granger causality test was applied, with the optimal lag length selected based on the Akaike criterion. Diagnostic tests included multicollinearity assessment (mean VIF = 1.84), the Hausman test (favoring fixed effects), the Breusch–Pagan test (indicating heteroskedasticity), the Wooldridge test (indicating autocorrelation), and the Sargan test (confirming instrument validity in the GMM specification). Robust standard errors were corrected using the Driscoll–Kraay method. Sensitivity analyses were also conducted by replacing the KZ index with the SA index and by employing the dynamic Arellano–Bond generalized method of moments (GMM) estimator.
 
Results
The results of the demographic characteristics of the respondents show that 53.5% of the studied individuals are male and 46.5% are female. In terms of marital status, most respondents are married (90.8%) and only 9.2% are single. Regarding the level of education, the largest share belongs to individuals with a bachelor's degree (51.2%). After that, individuals with a diploma (21.6%) and individuals with postgraduate education (master's and above) (13.7%) are placed. Also, 7.7% of the respondents have education at the middle school level and 5.7% are illiterate. The average age of the respondents was 45.42 years, which indicates that the studied population mainly consists of middle-aged individuals who play an active role in rural agricultural and economic activities. The calculated findings regarding the community-based agritourism variable show that the mean of all items is higher than the median of the average responses, indicating the high capacity of agritourism in the rural areas of the studied region. According to the opinions of the respondents (the local community), their willingness, participation, and support for the creation and development of this type of tourism are high. Also, regarding the rural business variable, the calculated means for all items show a value higher than the median of the average responses, indicating the favorable status of all items related to the agritourism business in the villages of Tonekabon Township. The results of the one-sample t-test for both variables were calculated to be higher than the median of the average responses and are significant at the 99% level, indicating the favorable status of rural businesses and the support of the local community for these businesses, which is formed as a result of the creation and development of agritourism in rural areas. The results obtained from the Pearson correlation test also show that the two variables have a direct and significant relationship at the 99% level. The greater the growth and development of agritourism activities with ownership and for the benefit of the local community, the more growth and ultimately development will follow in the rural businesses related to these activities.
 
Conclusion
The findings provide strong evidence that environmental governance functions as an effective governance mechanism and plays a leading role in reducing financing constraints among Iranian firms. This effect appears to be particularly important for firms facing greater barriers to external finance. Implementing green governance practices can reduce the cost of capital and improve access to bank credit and capital markets by increasing transparency, reducing information asymmetry, lowering perceived risk, and sending positive signals about management’s long-term commitment. Ownership structure also plays a crucial moderating role. While high ownership concentration directly exacerbates financing constraints, green governance can mitigate this adverse effect. Institutional ownership, through professional monitoring and attention to sustainability criteria, creates a strong synergistic effect with green governance. For policymakers and the Securities and Exchange Organization, mandating sustainability reporting and requiring sustainability committees in large firms are recommended. For managers, investing in environmental governance represents a sound financial strategy for reducing capital costs and improving access to financial resources. This research is limited to listed firms and relies on self-reported data; future studies could examine the role of board diversity, digital technologies, and external shocks.
 
Funding
No funding was received from any public or private entity.
 
Authors’ Contribution
The author is responsible for the entire article.
 
Conflict of Interest
No conflicts of interest were reported in this study.
 
Acknowledgments
I would like to thank the editor, the journal staff, and the reviewers.