This study employs an effect decomposition regression (EDR) framework to analyze the impact of ESG scores on firm performance, focusing on the importance of firm size. A key finding of this study is that firm size matters in characterizing this relationship. For large firms, ESG scores significantly impact total revenues and are characterized by a U-shaped curve where ESG scores initially reduce firm performance, but later switch to a positive impact as scores rise. On the other hand, smaller firms exhibit a monotonically increasing or incremental benefit from ESG scores. This research underscores the necessity of controlling for firm size and further suggests that examining the impact of ESG scores by firm size groups may be essential for understanding the underlying dynamics. From a policy perspective, it is clear that one must consider firm size before advocating for practices as a universal value-enhancing proposition for all firms.

How does foreign aid affect recipient countries’ labor institutions? Extant empirical evidence is sparse due to ambiguous theoretical predictions and potential endogeneity issues. This study uses data detailing aid flow and institutional functions to mitigate such inconclusiveness and displays originality by constructing a concise theoretical framework in which foreign aid contributes to the improvement of the labor institutions in recipient countries through two mechanisms—economic growth purpose and expected aid attraction. The findings indicate that only aid to enhance local economic growth provides incentives to change domestic labor markets. Such effects have a more crucial influence on labor institutions of minimum wage, collective bargaining rights, and working hours than those related to hiring and firing regulations, mandated costs for worker dismissal, and conscription. For comparison with the actual aid level, we construct forecasted proxies to capture exogenous fluctuations in aid, determining that domestic labor markets can also change via a novel mechanism, as the recipient voluntarily mimics the funder’s labor policies in anticipation of receiving future aid, with exact amounts derived from the noninstitutional characteristics of pairs of bilateral recipient and giver economies. Therefore, we provide policy implications for the aid giver on how to secure a continued and increased aid flow and for the aid receivers on which aspects of reforming measures are most effective in enhancing the labor market regulations.