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The influence of ESG on financial performance. Evidence from a combined cluster and panel regression analysis

Author

Listed:
  • Cosmin-Dănuț VEZETEU

    (Transilvania University of Brașov, Romania.)

  • Marius Sorin DINCĂ

    (Transilvania University of Brașov, Romania.)

  • Raluca-Ioana STĂNCIULESCU

    (Bucharest University of Economic Studies, Romania.)

Abstract

While most studies analyze the relationship between ESG and financial performance (FP) through a separate E, S and G spectrum, that approach fails to capture the risks behind a company’s exposure to material ESG issues and its management. This study proposes a novel approach, based on ESG Risk and its two dimensions: Exposure and Management. To analyze their influence on financial performance, a combined cluster and panel regression analysis is employed on data for more than 2000 firms worldwide, between 2018 - 2022. Results show that companies tend to be grouped in ESG-FP performers and laggards. However, the GMM models employed at sample and cluster leve, respectively, reveal an inconclusive relationship between the financial and non-financial variables. Future research should explore alternative methodologies, data sources and longer time horizons to better understand the evolving dynamics between ESG risk dimensions and financial performance.

Suggested Citation

  • Cosmin-Dănuț VEZETEU & Marius Sorin DINCĂ & Raluca-Ioana STĂNCIULESCU, 2024. "The influence of ESG on financial performance. Evidence from a combined cluster and panel regression analysis," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 82-104, December.
    • Handle: RePEc:rjr:romjef:v::y:2024:i:4:p:82-104
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    More about this item

    Keywords

    ESG; financial performance; cluster analysis; panel regression analysis; risk mitigation;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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