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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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    References listed on IDEAS

    as
    1. Nisar Ahmad & Asma Mobarek & Naheed Nawazesh Roni, 2021. "Revisiting the impact of ESG on financial performance of FTSE350 UK firms: Static and dynamic panel data analysis," Cogent Business & Management, Taylor & Francis Journals, vol. 8(1), pages 1900500-190, January.
    2. Gunnar Friede & Timo Busch & Alexander Bassen, 2015. "ESG and financial performance: aggregated evidence from more than 2000 empirical studies," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 5(4), pages 210-233, October.
    3. Caterina De Lucia & Pasquale Pazienza & Mark Bartlett, 2020. "Does Good ESG Lead to Better Financial Performances by Firms? Machine Learning and Logistic Regression Models of Public Enterprises in Europe," Sustainability, MDPI, vol. 12(13), pages 1-29, July.
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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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