Dynamic Relationship Between ESG Disclosure and Corporate Performance: Evidence from Asian Capital Markets

Abstract

ESG disclosure has evolved as a vital element of corporate sustainability reporting nevertheless, empirical literature regarding its economic impacts still remains insufficient, particularly in Asian economies. This examination fills this gap by investigating the effect of enhanced ESG disclosure on accounting and market-based performance of publicly listed firms. The study employs panel dataset of 1,406 listed firms with 30,932 firm-year observations from 11 Asian economies, for a period of 22 years from 2002 to 2023. The association between ESG disclosure and corporate performance is studied using two-way fixed-effects panel regression. To guarantee the robustness of the findings, the analysis is supported with robustness tests, panel co-integration analysis, Granger causality tests, and Structural Equation Modelling. The empirical results show that ESG disclosure has a significant positive effect on accounting and market-based performance indicators of firms. It results in improved profitability, market valuation, investor confidence and reduced firms' cost of capital, which implies that transparent sustainability reporting decreases information asymmetry and perceived investment risk. The findings encourage firms to align ESG disclosure into their strategic and governance mechanisms in order to achieve improved performance with reduced costs and strong corporate image. Unlike prior studies that investigate individual countries and employ a single financial indicator of firm performance, this study extends the academic ESG literature by offering cross-country empirical evidence from Asian capital markets with a multidimensional analysis of corporate performance.

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