Research Feature with Jing Lu

Jing Lu is an accounting assistant professor in the Department of Management at the Lang School. Her research focuses on sustainability accounting, corporate finance, corporate governance, business analytics, and machine learning. Jing has published several papers on sustainability accounting.

What is the overarching focus of your research program?

Generally speaking, I am interested in firm sustainability. Specifically, my research focuses on how corporate governance affects firm sustainability. I closely examine how the relationships and networks between company board members play a role in this.

I have written several articles about board interlocks, which refer to the situation where the same person serves on the boards of directors of two or more different companies. This creates a network of connections between companies, facilitating the sharing of information and influence. Essentially, it’s like having a common friend who sits on the decision-making groups of different organizations, potentially linking those organizations through shared insights and interests.

The first article, Lu, Yu, Mahmoudian, Nazari, and Herremans (2021),  shows that when board members have more connections—especially within the same industry, across various industries, or with high-performing companies—it can lead to lower greenhouse gas emissions.  The second article, Lu, Mahmoudian, Yu, Nazari, and Herremans (2021), builds on these findings and explores how board connections influence a company’s environmental performance through absorptive capacity. “Absorptive capacity” describes a company’s ability to take in external information and use it effectively. Companies with high absorptive capacity can learn quickly, adapt to changes, and capitalize on new opportunities. We find that the relationship between board interlocks and environmental performance is stronger in companies with higher absorptive capacity, measured by research and development (R&D) intensity.

The second topic of my research focuses on how firm sustainability performance affects its financial performance during crises. Using a sample of G7 firms, Lu, Rodenburg, Foti, and Pegoraro (2022) find that companies committed to sustainability tend to be more profitable over time. Financially successful companies are also likely to improve their sustainability efforts. During the financial crisis, financially strong companies better supported their sustainability initiatives, whereas during the COVID-19 pandemic, companies with strong sustainability practices showed better financial resilience. These findings suggest that a strong commitment to sustainability can provide economic benefits and act like insurance during economic downturns.

Lu and Khan (2023) expand on the work of Lu et al. (2022) using a sample of global firms from 34 countries. We find that companies that perform well in sustainability tend to earn more money in both developed and emerging markets the following year. During the COVID-19 crisis in 2020–2021, this effect was more noticeable in developed countries than in emerging ones. Additionally, companies from emerging markets that are listed on European stock exchanges benefit from the strict standards and practices of developed markets, making these sustainability-focused firms more profitable.

Briefly describe a research problem or issue you are currently investigating. What questions or challenges are you hoping to address?

Earlier research has shown that companies with dedicated board committees focusing on sustainability are more transparent about their social and environmental actions. I have found that the connections of board directors can influence a company’s sustainability. However, it is still unclear whether a board member’s sustainability knowledge gained from serving on another company's board helps improve a company’s sustainability disclosure. My first research question explores this gap.

Additionally, research highlights that certain corporate governance mechanisms, such as having a gender-diverse board and ensuring board members are independent, can support sustainability. However, there has been little investigation into how these factors work together. Therefore, my second research question examines whether the combination of these good management practices and board members with sustainability experience from other boards enhances a company’s transparency in sustainability disclosure.

Who is the target audience? Why is your research important to this audience? Why does it matter?

My research contributes to both theory and practical evidence, targeting several audiences.

Academic Audience:

My research integrates two theories: resource dependence and agency theory. Resource dependence theory explains the benefits that board members with sustainability experience bring to resource-scarce firms, aiming for transparent sustainability reports. Agency theory helps us understand how board of directors can better fulfill their oversight duties. My research explores whether companies can benefit from board members who serve on sustainability committees at other firms, leading to improved transparency in their voluntary sustainability disclosures.

Practitioners:

This research provides actionable insights for practitioners involved in corporate governance and sustainability reporting, particularly in board composition and diversity. Practitioners can use these findings to refine their strategies for board composition. By prioritizing the appointment of board members with sustainability experience from other firms, companies can enhance the transparency of their sustainability disclosures. The research highlights the importance of diversity, not just in terms of gender but also in industry backgrounds and independence. Practitioners should aim to build boards that are diverse across these dimensions to maximize the positive impact on sustainability reporting. Overall, this research equips practitioners with tools to enhance the effectiveness and transparency of their sustainability disclosure practices, ultimately contributing to better corporate governance and stakeholder trust.

General Public:

This research has significant implications for the general public. It highlights ways companies can improve the transparency of their sustainability reports, meaning the public will have better access to clear and reliable information about a company’s environmental and social practices. This allows for more informed decisions as consumers, investors, and stakeholders. By emphasizing the importance of board diversity and sustainability experience, the research encourages companies to adopt better governance practices. This can lead to more responsible corporate behavior, benefiting society by promoting ethical and sustainable business operations.

What is the wider social benefit and/or outcomes of this research?

The results are published in Lu, Yu, Mahmoudian, Nazari, and Herremans (2024). We broadened the definition of diversity to include connections from different industries and examined how this industry diversity affects the clarity of sustainability reports. Our findings show a positive link: companies with a greater variety of connections across industries tend to have more transparent sustainability disclosures.

Our research provides strong evidence that shared sustainability experience positively impacts a firm's sustainability reporting, especially when combined with gender diversity and independent board members.

Key takeaways include increasing the number of board connections, fostering a diverse range of connections across both similar and different industries, establishing connections with firms known for high transparency, and appointing board members or sustainability committee members with relevant experience from other firms. Our findings also suggest that the experience gained through these connections enhances sustainability reporting, particularly when considering the independence and gender diversity of board members.

This shows that companies can acquire valuable insights and resources by leveraging their connections with other organizations through board interlocks.

What comes next?

I will continue exploring how the relationships between company board members can enhance company sustainability. My upcoming article will examine how connections between different company boards provided support during the COVID-19 pandemic.