Evaluating the impact of environmental, social, and governance factors on firm performance and value: An empirical analysis of selected Australian corporations

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Abstract

In the contemporary business landscape, the environmental, social, and governance (ESG) has gained prominence, considering their role in enhancing the corporate reputation through their ethical and sustainable operations. The primary purpose of the study was to investigate the impact of ESG on the financial performance (FP) and value of the companies through an empirical research methodology (Ahmad et al., 2021). The sample size consisted of 44 Australian enterprises selected through a purposive sampling technique for five fiscal years, i.e., 2018 to 2022. The performance and value were measured by return on assets (ROA) and Tobin’s Q, whereas the size of the companies (SIZE) was considered as a moderator and leverage (LEVERAGE) was the control variable. The fixed-effects modelling indicated that ESG did not influence the ROA but had an adverse effect on Tobin’s Q. However, while the moderation of the ESG metric by SIZE provided the same results, the individual ESG metrics had a positive impact on the value (Whelan et al., 2021). Practically, the ESG plays a crucial role in influencing the market value of the companies but overdoing might not create a positive mindset in the market, and the share prices might decline.

Keywords: ESG, Firm Performance, Firm Value, Purposive Sampling Technique, Fixed-Effects Modelling

Authors’ individual contribution: The Author is responsible for all the contributions to the paper according to CRediT (Contributor Roles Taxonomy) standards.

Declaration of conflicting interests: The Author declares that there is no conflict of interest.

JEL Classification: G30, G32, L25, M14, Q01

Received: 18.01.2024
Accepted: 07.10.2024
Published online: 09.10.2024

How to cite this paper: Zhang, C. (2024). Evaluating the impact of environmental, social, and governance factors on firm performance and value: An empirical analysis of selected Australian corporations. Journal of Governance & Regulation, 13(4), 106–116. https://doi.org/10.22495/jgrv13i4art11