Abstract
In this study we investigates the relationship of environmental, social and governance (ESG) practices and the consequences related to their disclosure on the firm's value. Our data is extracted from the final accounts of 122 firms listed on Bursa Malaysia over the period 2011 to 2019 with 1098 observations. We used three instrumental variables in this study in order to find the endogeneity of ESG performance namely, the existence of a CSR committee on the Board of directors, dispersion of forecasted earnings and finally the ownership concentration of the firm. We used three first stage regression models related to ESG disclosure and the interaction between the strength, concern, and disclosure of ESG. Besides that, we also use the second stage regression to investigate the insider effects of ESG activities and ESG disclosure. Our results are consistent with the approach that indicate that ESG strength increases firm value whereas ESG disclosure and ESG concern decreases the firm value. Most importantly, this study finds that ESG disclosures can play the role by which a firm can reduce the negative effect of weakness and improve the positive effect of strength. Keywords: Environmental, Social Governance Practices, ESG Activities, ESG PerformanceJEL Classifications: F64, M14 DOI: https://doi.org/10.32479/ijeep.10217
Highlights
The research objective is driven by the concern that the ESG index affects the market values of Malaysian listed firms
The first three columns present the investigation of first stage regression related to TOBINQ ESG disclosure (ESGDIS) ESG strength (ESGSTR) ESG concerns (ESGCONR) return on asset (ROA) INCROA FSALE asset to sales ratio and denoted by (ASSAL) DEEQ SAEX
The results indicate that firm value is significantly increased by ESG strength whereas, it is significantly decreased by ESG concern and ESG disclosure
Summary
The research objective is driven by the concern that the ESG index affects the market values of Malaysian listed firms. To identify the association between ESG index and firm value, we investigate the interrelationship between the strength and weakness of the firm with respect to environmental and social practices. Our research proposal is concerned with identifying the effects of ESG disclosure on both the firm internally and the economy more largely as well as the moderating impact of such disclosures on the firm value. ESG disclosure may play dual roles of both strength and weakness for a firm as it reduces information asymmetries for investors that helps them to realize the firm value more effectively when making their decisions. Firm value may be impaired by ESG disclosure in cases where investors find any eye wash or frivolous remarks when making their disclosures
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