Impact of Corporate Governance Performance and Firm Financial Performance: Mediating Role of Leverage in Carbon-Intensive Firms in South Africa

This study seeks to establish how financial leverage mediates the relationship between corporate governance and firm financial performance of 58 carbon-intensive firms listed on the Johannesburg Stock Exchange for a period 2015-2023. The research employed a two-step system generalized method of moments to address endogeneity issues. The study indicates that leverage negatively impacts firm financial performance; but leverage does not mediate the relationship between corporate governance and firm financial performance in carbon-intensive firms. The results of the study also reveal that board remuneration negatively influences firm financial performance, yet board independence shows insignificant impact on firm performance. These results underscore the need for carbon-intensive companies to reassess their remuneration policies to ensure alignment with short-term financial benefits and long-term sustainability initiatives. The findings also suggest that sustainability projects financed predominantly by debts may negatively impact short- firm financial performance, indicating the importance of balanced capital structure during the decarbonisation process.