Journal Screenshot

International Journal of Academic Research in Business and Social Sciences

Open Access Journal

ISSN: 2222-6990

ESG Disclosure and Firm Performance: Evidence after the Revision of Malaysian Code of Corporate Governance

Noor Hidayah Ab Aziz, Ahmed Razman Abdul Latiff , Sajead Mowafaq Alshdaifat , Mohammad Noor Hisham Osman , Nurul Azlin Azmi

http://dx.doi.org/10.6007/IJARBSS/v13-i12/19140

Open access

Environmental, Social and Governance (ESG) is one of the vital concerns in the current corporate environment. Firms must be transparent on ESG issues to create sustainable value and fulfill stakeholders’ rights. Since the late 2000s, many countries, including ASEAN countries, have mandated ESG disclosure to increase transparency. This study aims to examine the effect of ESG disclosure on firm performance measured by profitability indicators among Malaysian public listed firms with the data collected from 2017 after the revision of the Malaysian corporate governance code from ‘comply and explain’ to ‘apply and explain’ until 2021. The data was gathered from the Thomson Reuters Eikon Database, which consists of ESG scores and firm profitability through ROA and ROE. Using OLS regression method, the results indicate that ESG disclosure positively and significantly affects ROA and ROE. While, the results of each individual pillar of ESG (environmental, social and governance) revealed that only ROA was strongly impacted by all the pillars, whereas ROE was only affected by the social pillar. Further analysis revealed firms with higher ESG disclosure perform superior to those with lower ESG disclosure. This study helps to enrich the knowledge of ESG disclosure and its effect on firm performance. Particularly this study will help Malaysian firms to strategies on ESG disclosure to realise its impact on performance. Besides, capital market regulators will also have a direction to impose regulations pertinent to ESG.

Abdul Rahman, R., & Alsayegh, M. F. (2021). Determinants of Corporate Environment, Social and Governance (ESG) Reporting among Asian Firms. Journal of Risk and Financial Management, 14(4), 167.
Ademi, B., & Klungseth, N. J. (2022). Does it pay to deliver superior ESG performance? Evidence from US S&P 500 companies. Journal of global responsibility, 13(4), 421-449.?
Alareeni, B. A., & Hamdan, A. (2020). ESG impact on performance of US S&P 500-listed firms. Corporate Governance (Bingley), 20(7), 1409–1428.
Albitar, K., Hussainey, K., Kolade, N., & Gerged, A. M. (2020). ESG disclosure and firm performance before and after IR: The moderating role of governance mechanisms. International Journal of Accounting and Information Management, 28(3), 429–444.
Armstrong, A. (2020). Ethics and ESG. Australasian Accounting, Business and Finance Journal, 14(3), 6-17.
Atan, R., Alam, M. M., Said, J., & Zamri, M. (2018). The impacts of environmental, social, and governance factors on firm performance: Panel study of Malaysian companies. Management of Environmental Quality: An International Journal, 29(2), 182–194.
Atif, M., Liu, B., & Nadarajah, S. (2022). The effect of corporate environmental, social and governance disclosure on cash holdings: Life?cycle perspective. Business Strategy and the Environment, 31(5), 2193-2212.?
Aydo?mu?, M., Gülay, G., & Ergun, K. (2022). Impact Of Esg Performance On Firm Value And Profitability. Borsa Istanbul Review. 2214-8450.
Alsayegh, M. F., Abdul Rahman, R., & Homayoun, S. (2020). Corporate economic, environmental, and social sustainability performance transformation through ESG disclosure. Sustainability, 12(9), 3910.
Baran, M., Ku?niarska, A., Makie?a, Z. J., S?awik, A., & Stuss, M. M. (2022). Does ESG Reporting Relate to Corporate Financial Performance in the Context of the Energy Sector Transformation? Evidence from Poland. Energies, 15(2), 477.
Buallay, A. (2018). Is sustainability reporting (ESG) associated with performance? Evidence from the European banking sector. Management of Environmental Quality: An International Journal, 30(1), 98-115.
Buallay, A. (2021). Sustainability reporting and agriculture industries’ performance: worldwide evidence. Journal of Agribusiness in Developing and Emerging Economies, 12(5), 769-790.?
Chen, H. Y., & Yang, S. S. (2020). Do investors exaggerate corporate ESG information? Evidence of the ESG momentum effect in the Taiwanese market. Pacific-Basin Finance Journal, 63, 101407.
Chouaibi, S., Chouaibi, J., & Rossi, M. (2022). ESG and corporate financial performance: the mediating role of green innovation: UK common law versus Germany civil law. EuroMed Journal of Business, 17(1), 46–71.
Crowther, D., & Lancaster, G. (2008). Research Methods: A Concise Introduction to Research in Management and Business Consultancy. Oxford: Butterworth-Heinemann.
DasGupta, R. (2022). Financial performance shortfall, ESG controversies, and ESG performance: Evidence from firms around the world. Finance Research Letters, 46, 102487.?
De Lucia, C., Pazienza, P., & Bartlett, M. (2020). Does good ESG lead to better financial performances by firms? Machine learning and logistic regression models of public enterprises in Europe. Sustainability, 12(13), 5317.
Dorfleitner, G., Halbritter, G., & Nguyen, M. (2015). Measuring the level and risk of corporate responsibility–An empirical comparison of different ESG rating approaches. Journal of Asset Management, 16(7), 450-466.
Drempetic, S., Klein, C., & Zwergel, B. (2020). The Influence of Firm Size on the ESG Score: Corporate Sustainability Ratings Under Review. Journal of Business Ethics, 167(2), 333–360.
Duque-Grisales, E., & Aguilera-Caracuel, J. (2021). Environmental, Social and Governance (ESG) Scores and Financial Performance of Multilatinas: Moderating Effects of Geographic International Diversification and Financial Slack. Journal of Business Ethics, 168(2), 315–334.
El Ghoul, S., & Karoui, A. (2021). What's in a (green) name? The consequences of greening fund names on fund flows, turnover, and performance. Finance Research Letters, 39, 101620.
Farooq, O. (2015). Financial centers and the relationship between ESG disclosure and firm performance: Evidence from an emerging market. Journal of Applied Business Research, 31(4), 1239-1244.
Fatemi, A., Glaum, M., & Kaiser, S. (2018). ESG performance and firm value: The moderating role of disclosure. Global Finance Journal, 38, 45–64.
Febrianto, G. N., Ratnawati, T., & Riyadi, S. (2022). The effect of macroeconomic factor, earning management and financial risk on firms'value: an empirical analysis of listed commercial banks. International Journal of Economics and Finance Studies, 14(2), 156-170.
Garcia, A. S., & Orsato, R. J. (2020). Testing the institutional difference hypothesis: A study about environmental, social, governance, and financial performance. Business Strategy and the Environment, 29(8), 3261–3272.
Garcia, A. S., Mendes-Da-Silva, W., & Orsato, R. J. (2017). Sensitive industries produce better ESG performance: Evidence from emerging markets. Journal of Cleaner Production, 150, 135–147.
Gerard, B., 2019. ESG and Socially Responsible Investment: A Critical Review. Beta, 2019, Volume 33(01), pp. 61–83.
Gholami, A., Murray, P. A., & Sands, J. (2022). Environmental, Social, Governance & Financial Performance Disclosure for Large Firms: Is This Different for SME Firms? Sustainability, 14(10), 6019.
Giannopoulos, G., Kihle Fagernes, R. V., Elmarzouky, M., & Afzal Hossain, K. A. B. M. (2022). The ESG Disclosure and the Financial Performance of Norwegian Listed Firms. Journal of Risk and Financial Management, 15(6), 237.
Hair, J.F., Black, B.J., Babin, B.J., Anderson, R.E. & Tatham, R.L. (2010). Multivariate data analysis. 7thEd. Upper Saddle River: Pearson Prentice Hall.
Halid, S., Rahman, R. A., Mahmud, R., Mansor, N., & Wahab, R. A. (2023). A Literature Review on ESG Score and Its Impact on Firm Performance. International Journal of Academic Research in Accounting Finance and Management Sciences, 13(1), 272–282.
Jonsdottir, G. E., Sigurjonsson, T. O., Alavi, A. R., & Mitchell, J. (2021). Applying responsible ownership to advance SDGs and the ESG framework, resulting in the issuance of green bonds. Sustainability, 13(13), 7331.
Kalia, D., & Aggarwal, D. (2023). Examining impact of ESG score on financial performance of healthcare companies. Journal of Global Responsibility, 14(1), 155-176.?
Kim, S., & Li, Z. (2021). Understanding the impact of ESG practices in corporate finance. Sustainability, 13(7), 3746.
Lagasio, V., & Cucari, N. (2019). Corporate governance and environmental social governance disclosure: A meta-analytical review. Corporate Social Responsibility and Environmental Management, 26(4), 701–711.
Li, Y., Gong, M., Zhang, X. Y., & Koh, L. (2018). The impact of environmental, social, and governance disclosure on firm value: The role of CEO power. British Accounting Review, 50(1), 60–75.
Lorena, A. (2018). European Journal of Economics and Business Studies The Relation between Corporate Social Responsibility and Bank Reputation: A Review and Roadmap. European Journal of Economics and Business Studies, 4(2), 7–19.
MCCG (2012), Malaysian Code on Corporate Governance, Securities Commission, Kuala Lumpur. Retrieve from: https://www.sc.com.my/regulation/regulatory-faqs/malaysian-code-on-corporate-governance-2012.
MCCG (2017), Malaysian Code on Corporate Governance, Securities Commission, Kuala Lumpur. Retrieve from:
https://www.sc.com.my/api/documentms/download.ashx?id=4d1f5610-cf41-455c-9c20-21fa4c310f46
Mohammad, W. M. W., & Wasiuzzaman, S. (2021). Environmental, Social and Governance (ESG) disclosure, competitive advantage and performance of firms in Malaysia. Cleaner Environmental Systems, 2, 100015.?
Morningstar. 2020. 'Global Sustainable Fund Flows'. Morningstar.
https://www.morningstar.comcontent/dam/marketing/shared/pdfs/Research/Global_ESG_Q1_Flow_Report.pdf?utm_source=eloqua&utm_medium=email&utm_campaign=&utm_content=22447.
Nor, N. M., Bahari, N. A. S., Adnan, N. A., Kamal, S. M. Q. A. S., & Ali, I. M. (2016). The effects of environmental disclosure on financial performance in Malaysia. Procedia Economics and Finance, 35, 117-126.
Oprean-Stan, C., Oncioiu, I., Iuga, I. C., & Stan, S. (2020). Impact of sustainability reporting and inadequate management of ESG factors on corporate performance and sustainable growth. Sustainability, 12(20), 8536.
Qoyum, A., Sakti, M. R. P., Thaker, H. M. T., & AlHashfi, R. U. (2022). Does the islamic label indicate good environmental, social, and governance (ESG) performance? Evidence from sharia-compliant firms in Indonesia and Malaysia. Borsa Istanbul Review, 22(2), 306-320.?
Sadiq, M., Singh, J., Raza, M., & Mohamad, S. (2020). The impact of environmental, social and governance index on firm value: Evidence from Malaysia. International Journal of Energy Economics and Policy, 10(5), 555–562.
Saygili, E., Arslan, S., & Birkan, A. O. (2022). ESG practices and corporate financial performance: Evidence from Borsa Istanbul. Borsa Istanbul Review, 22(3), 525–533.
Shakil, M. H. (2021). Environmental, social and governance performance and financial risk: Moderating role of ESG controversies and board gender diversity. Resources Policy, 72, 102144.?
Shakil, M.H., Mahmood, N., Tasnia, M., & Munim, Z.H. (2019). Do environmental, social and governance performance affect the financial performance of banks? A cross-country study of emerging market banks. Management of Environmental Quality, 30(6), 1331-1344.
Sharma, P., Panday, P., & Dangwal, R. C. (2020). Determinants of environmental, social and corporate governance (ESG) disclosure: a study of Indian companies. International Journal of Disclosure and Governance, 17(4), 208–217.
SokHun ,Ng, Christine, Ng & Satirenjit, Kaur. Johl (2023). Overview of ESG Practices in Malaysia with Introduction of Conceptual Framework. International Journal of Academic Research in Business and Social Sciences, 13(15), 55 – 66.
Svanberg, J., Ardeshiri, T., Samsten, I., Öhman, P., Rana, T., & Danielson, M. (2022). Prediction of environmental controversies and development of a corporate environmental performance rating methodology. Journal of Cleaner Production, 344, 130979.?
Velte, P. (2017), "Does ESG performance have an impact on financial performance? Evidence from Germany", Journal of Global Responsibility, Vol. 8 No. 2, pp. 169-178.
Wasiuzzaman, S., Ibrahim, S. A., & Kawi, F. (2022). Environmental, social and governance (ESG) disclosure and firm performance: does national culture matter? Meditari Accountancy Research, 2049-372.
Wong, W. C., Batten, J. A., Mohamed-Arshad, S. B., Nordin, S., & Adzis, A. A. (2021). Does ESG certification add firm value? Finance Research Letters, 39, 101593.?
Yoo, S., & Managi, S. (2022). Disclosure or action: Evaluating ESG behavior towards financial performance. Finance Research Letters, 44, 102108.
Yixi, Z., & Sharon, C. P. Y. (2023). The Influence of Firm Size and Institutional Environment on ESG Disclosure - Evidence from Listed Companies in China. International Journal of Academic Research in Economics and Management and Sciences, 12(2), 109 – 132.
Zawawi, M. M., Ismail, A. M., & Kamarudin, S. N. (2023). Gender Diversity and Environmental, Social and Governance (ESG) of Malaysian Listed Companies. International Journal of Academic Research in Business and Social Sciences, 13(1), 1005 – 1014.
Zhao, C., Guo, Y., Yuan, J., Wu, M., Li, D., Zhou, Y., & Kang, J. (2018). ESG and corporate financial performance: Empirical evidence from China’s listed power generation companies. Sustainability (Switzerland), 10(8), 1–18.

(Aziz et al., 2023)
Aziz, N. H. A., Latiff, A. R. A., Alshdaifat, S. M., Osman, M. N. H., & Azmi, N. A. (2023). ESG Disclosure and Firm Performance: Evidence after the Revision of Malaysian Code of Corporate Governance. International Journal of Academic Research in Business and Social Sciences, 13(12), 2919–2938.