Financial performance of emerging market companies during the COVID-19 pandemic: moderating role of sustainability performance

Abstract

Purpose This study aims to investigate whether sustainability performance (SP) served as a safeguard for firm profitability (FP) and enhanced corporate resilience in emerging markets during the COVID-19 pandemic. Design/methodology/approach Using a sample of 1,091 firms in 25 emerging markets from 2017 to 2021, this study analyses the moderating role of SP on the relationship between FP and COVID-19 by using hierarchical linear modelling at three levels: (a) time-level; (b) firm-level; (c) country-level. Findings The results indicate that during the years 2020–2021, emerging market firms with robust SP showed better FP in the midst of the COVID-19 pandemic. The findings also indicate that all dimensions of sustainability, i.e. environmental, social and governance (ESG), have significantly affected the FP in the post-COVID period. Hence, adhering to ESG principles aids in alleviating adverse financial repercussions during times of crises. Practical implications This study provides valuable insights for companies and policymakers for finding solutions that may assist them in improving SP globally and enduring crises resiliently. The findings are also relevant to institutional investors that consider SP as an investment criteria. Although the COVID-19 pandemic was temporary, the lessons learned could protect firms from future similar global crises. Originality/value This study enhances the understanding of the contingency relationship between sustainability and financial performance by offering up-to-date empirical insights within the context of emerging markets during the pandemic. It demonstrates how different institutional frameworks influenced the SP–FP association during the crisis. Thus, this paper expands the understanding of crisis management literature and bridges the research void concerning the impact of SP on FP in an emerging market context.