Essays on Business Cycle Synchronisation and Environmental, Social and Governance Activities

This thesis presents empirical applications of panel data models with a factor structure regarding business cycle synchronisation (BCS) and environmental, social, and governance (ESG) activities.

Chapter 1 assesses the relationship between BCS and trade/finance intensities in a simultaneous equation panel data model that jointly accommodates simultaneity, spatial spillovers, global shocks and parameter heterogeneity. Individual CCEX-2SLS estimation results of 136 country-pairs (1995Q1-2019Q4) suggest explicitly considering parameter heterogeneity. In the spatial network analysis, most samples exhibit the opposite signs of direct and indirect effects of trade/finance intensities on BCS. Total effects of trade intensity and spillovers of trade/financial intensities on BCS are negative, suggesting that EU economies encourage smarter trade/financial intensity facilitation for improved BCS.

Chapter 2 analyses systematic components of ESG ratings using multilevel factor model. We adopt generalised canonical correlation method to MSCI and Refinitiv datasets across legal origins (English, French, German, Scandinavian). In ESG and E/S/G ratings, we find one global factor, implying ESG globalisation, whereas varying number of local factors across legal origins and sub-components. The global (local) factor dominates in Refinitiv (MSCI) data in explaining variance of ESG. Mixed evidence on impacts of legal origin on ESG performance indicates ESG divergence among raters, suggesting enhancing relative importance ratios of global factor to better predict overall ESG performance, which can be achieved by enforcing global mandatory reporting standards.

Chapter 3 explores the relationship between ESG and SDG across legal origins using integrated panel data model that jointly accommodates local spillovers, global shocks and parameter heterogeneity. Combining CCEX-IV approach and GCM network analysis, we find that civil (common) legal origin achieves higher direct (spill-in) effects of ESG on SDG, supporting the first and second generations of legal origin theory. But network analysis of ESG and E/S/G ratings suggests higher direct effect in common legal origin. Significant heterogeneity found within civil legal origins, with German legal origin being the most influential shock transmitter, challenges the monolithic view of civil law countries, suggesting considering sub-categorisation in legal origin theory.