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Nexus between ESG Practice and Firm Performance: Are there any Stylised Facts?

Author

Listed:
  • Tien-Ming Yip

    (Faculty of Business and Economics, Universiti Malaya)

  • Wee-Yeap Lau

    (Faculty of Business and Economics, Universiti Malaya)

Abstract

This study examines the relationship between firm performance and ESG (environmental, social and governance) practice for Malaysian public-listed companies. It evaluates whether the relationship varies with firms' market capitalisation, total liabilities, and free cash flow. Using firm-level data from 72 companies covered in the FTSE4Good Bursa Malaysia (F4GBM) index from 2014 to 2022, our results show the following. First, ESG practice is positively and significantly associated with firm performance. However, the positive impact is conditional on the firm-specific variables. In particular, the positive impact of ESG is significant for firms with high market capitalisation. Second, the positive impact of ESG diminishes as firms accumulate higher liabilities. Third, the positive impact of ESG prevails if firms attain a high level of free cash flow. Our results suggest that firms must increase their market capitalisation, reduce total liabilities, and improve their free cash flow to benefit from ESG practices.

Suggested Citation

  • Tien-Ming Yip & Wee-Yeap Lau, 2024. "Nexus between ESG Practice and Firm Performance: Are there any Stylised Facts?," Malaysian Journal of Economic Studies, Faculty of Business and Economics, University of Malaya & Malaysian Economic Association, vol. 61(2), pages 199-213, December.
    • Handle: RePEc:mjr:journl:v:61:y:2024:i:2:p:199-213
    DOI: 10.22452/MJES.vol61no2.1
    as

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    More about this item

    Keywords

    Environmental; social and governance (ESG); Tobin Q; corporate;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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