The Cyclic Relationship between Environmental, Social and Governance (ESG) Disclosure and Corporate Financial Performance (CFP) in a Regional Economy

Abstract

The main purpose of this study is to examine the existence of cycle relationship between ESG disclosure and financial performance of listed companies in Malaysia, Singapore and Thailand. The secondary data of total 140 companies was extracted from Bloomberg database for period 2011 to 2016. The ESG disclosure of corporate is represented by ESG disclosure score, while earnings per share (EPS) is used to measure the corporate financial performance (CFP). Two years lag effect was assumed in this study to test how CFP in period 1 (2011-2012) influences ESG disclosure score in period 2 (2012-2014), and how period 2 ESG disclosure score affects the subsequent CFP, which is defined as CFP in period 3 (2015-2016). The empirical results of this study found significant positive (negative) cyclic relationship for Malaysian (Singaporean) companies, while no significant cyclic relationship is found for companies in Thailand. The findings suggest that only Malaysian companies gain the financial appreciation from making sustainability reporting through reducing information asymmetry to stakeholders.