Beyond Profits: Unveiling the ESG–Profitability Nexus in Asian Markets Through Board Compensation

Abstract

This study is conducted to examine the relationship between overall ESG performance and financial performance through the moderating role of board compensation. By adopting a large panel dataset, this study follows the fixed effect models to examine how ROA and ROE influence on the ESG score as well as each dimension of the ESG, including social, environmental and governance. The study includes two interaction effects to examine whether board compensation strengthens or weakens the connection between corporate financial performance and operational efficiency (ROA) and shareholder returns (ROE). The finding highlight that both metrics are consistent to determine financial performance but also examine its influence on sustainability outcomes, as ROA identify the operational efficiency while ROE explains the shareholder returns. Moreover, the findings suggest that board compensation significantly moderates both relationships. Therefore, this study offers practical and theoretical implications, as it serves as a guide for achieving sustainable value creation through aligning board incentives with organizational goals. In emerging Asian countries, transparent governance and long-term performance evaluation should be encouraged.

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