Is ESG Companies' Performance Influenced by Ownership Structure? Evidence in ASEAN
Downloads
Background: According to studies on sustainability dimensions – environmental, social, and governance (ESG) – companies that effectively address the stakeholders’ ESG expectations are likely to outperform companies that poorly implement ESG principles. Studies show mixed results of the relationship between ESG and financial performance. Besides, ESG adoption in ASEAN countries is still in early stage compared with European countries or US region.
Aim: The purpose of this paper is to investigate the relationship between Environmental, Social and Governance (ESG) performance and firm performance of ASEAN listed companies moderated by company ownership structure.
Method: This paper selects publicly listed companies in ASEAN stock exchanges with data period of 2017-2021, a total of 607 companies samples with 1,309 data observations. Refinitiv Eikon ESG rating is adopted in this paper to measure ESG performance while ownership structure is measured in three aspects, which include ownership concentration, equity balances, and institutional investor shareholding.
Findings: The research found that (1) ESG performance has negative and significant relation to both market-based and accounting-based firm performances, (2) ownership concentration has no significant moderating role on ESG – firm performance relationship, (3) equity balance is only significant in moderating ESG relationship to Tobin’s Q, meanwhile (4) institutional ownership is found statistically significant in moderating the ESG relationship to Tobin’s Q and ROE but not to ROA.
Aboud, A., & Diab, A. (2022). Ownership characteristics and financial performance: Evidence from Chinese split-share structure reform. Sustainability, 14(12), 7240. https://doi.org/10.3390/SU14127240
Afriyani, J. (2018). The effect of managerial ownership, institutional and investment opportunities on stock performance in manufacturing companies that are listed on the IDX. International Journal of Scientific & Technology Research, 7, 110–115.
Alareeni, B. A., & Hamdan, A. (2020). ESG impact on performance of US S&P 500-listed firms. Corporate Governance, 20(7), 1409–1428. https://doi.org/10.1108/CG-06-2020-0258/FULL/PDF
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. https://doi.org/10.1108/IJAIM-09-2019-0108/FULL/PDF
Aydo?mu?, M., Gülay, G., & Ergun, K. (2022). Impact of ESG performance on firm value and profitability. Borsa Istanbul Review, 22, S119–S127. https://doi.org/10.1016/J.BIR.2022.11.006
Buallay, A. (2019). Is sustainability reporting (ESG) associated with performance? Evidence from the European banking sector. Management of Environmental Quality: An International Journal, 30(1), 98–115. https://doi.org/10.1108/MEQ-12-2017-0149/FULL/PDF
Buallay, A., El Khoury, R., & Hamdan, A. (2021). Sustainability reporting in smart cities: A multidimensional performance measures. Cities, 119, 103397. https://doi.org/10.1016/J.CITIES.2021.103397
Cardao-Pito, T. (2022). Hypothesis that Tobin’s q captures organizations’ debt levels instead of their growth opportunities and intangible assets. Cogent Economics & Finance, 10(1), 2132636. https://doi.org/10.1080/23322039.2022.2132636
Chen, Z., & Xie, G. (2022). ESG disclosure and financial performance: Moderating role of ESG investors. International Review of Financial Analysis, 83, 102291. https://doi.org/10.1016/J.IRFA.2022.102291
Chung, K. H., & Pruitt, S. W. (1994). A simple approximation of Tobin’s q. Financial Management, 23(3), 70–74. https://doi.org/10.2307/3665623
Cornett, M. M., Marcus, A. J., Saunders, A., & Tehranian, H. (2007). The impact of institutional ownership on corporate operating performance. Journal of Banking & Finance, 31(6), 1771–1794. https://doi.org/10.1016/J.JBANKFIN.2006.08.006
Dyck, I. J. A., Lins, K. V., Roth, L., & Wagner, H. F. (2017). Do institutional investors drive corporate social responsibility? International evidence. SSRN Electronic Journal. https://doi.org/10.2139/SSRN.2708589
Ernst & Young Global Limited. (2023). EY green tax tracker: Keeping pace with sustainability incentives, carbon regimes and environmental taxes.
Fahad, P., & Busru, S. A. (2020). CSR disclosure and firm performance: evidence from an emerging market. Corporate Governance (Bingley), 21(4), 553–568. https://doi.org/10.1108/CG-05-2020-0201
Friede, G., Busch, T., & Bassen, A. (2015). ESG and financial performance: aggregated evidence from more than 2000 empirical studies. Journal of Sustainable Finance and Investment, 5(4), 210–233. https://doi.org/10.1080/20430795.2015.1118917
Fu, L., Boehe, D. M., & Orlitzky, M. O. (2022). Broad or narrow stakeholder management? A signaling theory perspective. Business and Society, 61(7), 1838–1880. https://doi.org/10.1177/00076503211053018
Glorynta, G. R., & Hidayah, N. (2022). Analysis of factors affecting the number of the poor population in the ex-cardicancy of Surakarta, 2017-2020. In I. Mafruhah (Ed.), Regional Economic Development, Information Technology, and Sustainable Business: Current Issues and Research Challenges (1st ed., pp. 73–88). Jejak Pustaka.
Gujarati, D., & Porter, D. (2009). Basic econometrics (5th ed.). McGraw-Hill/Irwin.
Ha, N. M., & Hiep, P. (2019). The effect of institutional ownership on listed companies’ performance in Vietnam. International Journal of Economics and Business Research, 17(3), 317–332. https://doi.org/10.1504/IJEBR.2019.098878
He, C. X., Soh, W. N., Ong, T. S., Lau, W. T., & Zhong, B. (2022). Analysis of equity disputes in listed companies with dispersed ownership structure and protection of small and medium shareholders’ interests. Frontiers in Psychology, 13, 1946. https://doi.org/10.3389/FPSYG.2022.857585/BIBTEX
Heugens, P. P. M. A. R., van Essen, M., & van Oosterhout, J. (2009). Meta-analyzing ownership concentration and firm performance in Asia: Towards a more fine-grained understanding. Asia Pacific Journal of Management, 26(3), 481–512. https://doi.org/10.1007/S10490-008-9109-0/FIGURES/1
Huang, W., Luo, Y., Wang, X., & Xiao, L. (2022). Controlling shareholder pledging and corporate ESG behavior. Research in International Business and Finance, 61, 101655. https://doi.org/10.1016/J.RIBAF.2022.101655
IHS Global Inc. (2020). EViews 12 User’s Guide II. IHS Markit.
International Monetary Fund. (2023). World Economic Outlook - GDP, Current Prices. International Monetary Fund.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360. https://doi.org/10.1016/0304-405X(76)90026-X
Korwatanasakul, U. (2020). Environmental, social, and governance investment: Concepts, prospects, and the policy landscape. In N. Nemoto & P. J. Morgan (Eds.), Environmental, social, and governance investment: Opportunities and risks for Asia (pp. 1–31). Asian Development Bank Institute.
Lativa, S., & Susilastuti, D. (2021). Analysis of the impact of economic growth and wages on educated unemployment in Indonesian provincial area. In F. J. Nugroho, E. E. Supriyanto, M. Rachmawati, H. Saksono, K. Kustiyono, & R. Rahim (Eds.), Multidiscipline International Conference (pp. 131–142). European Alliance for Innovation. https://doi.org/10.4108/EAI.30-10-2021.2315852
Li, T. T., Wang, K., Sueyoshi, T., & Wang, D. D. (2021). ESG: Research progress and future prospects. Sustainability, 13(21), 11663. https://doi.org/10.3390/SU132111663
Lin, Y. R., & Fu, X. M. (2017). Does institutional ownership influence firm performance? Evidence from China. International Review of Economics & Finance, 49, 17–57. https://doi.org/10.1016/J.IREF.2017.01.021
Liu, W., Wei, W., Yan, X., & Wang, D. (2019). Supply contract design with asymmetric corporate social responsibility cost information in service supply chain. Sustainability 2019, Vol. 11, Page 1408, 11(5), 1408. https://doi.org/10.3390/SU11051408
Lubis, M. F. F., & Rokhim, R. (2021). The effect of environmental, social, and governance (ESG) disclosure and competitive advantage on companies performance as an implementation of sustainable economic growth in indonesia for period of 2015-2019. IOP Conference Series: Earth and Environmental Science, 940(1). https://doi.org/10.1088/1755-1315/940/1/012059
Ma’in, M., Asmuni, S., Junos, S., Rostam, S. N., Azmi, N. H. A., & Sahidza, K. R. (2022). Impact of environmental, social, and governance (ESG), profitability and macroeconomics indicators on firm performance. Journal of Entrepreneurship, Business and Economics, 10(2), 1–17.
Malik, Q. A., Hussain, S., Ullah, N., Waheed, A., Naeem, M., & Mansoor, M. (2021). Simultaneous equations and endogeneity in corporate finance: The linkage between institutional ownership and corporate financial performance. Journal of Asian Finance, Economics and Business, 8(3), 69–77. https://doi.org/10.13106/JAFEB.2021.VOL8.NO3.0069
Nguyen, T., Locke, S., & Reddy, K. (2015). Ownership concentration and corporate performance from a dynamic perspective: Does national governance quality matter? International Review of Financial Analysis, 41, 148–161. https://doi.org/10.1016/J.IRFA.2015.06.005
Prabawati, P. I., & Rahmawati, I. P. (2022). The effects of environmental, social, and governance (ESG) scores on firm values in ASEAN member countries. Jurnal Akuntansi Dan Auditing Indonesia, 26(2), 119–129. https://ideas.repec.org/a/uii/jaaife/v26y2022i2p119-129id22834.html
Puni, A., & Anlesinya, A. (2020). Corporate governance mechanisms and firm performance in a developing country. International Journal of Law and Management, 62(2), 147–169. https://doi.org/10.1108/IJLMA-03-2019-0076/FULL/PDF
Radhouane, I., Nekhili, M., Nagati, H., & Paché, G. (2020). Is voluntary external assurance relevant for the valuation of environmental reporting by firms in environmentally sensitive industries? Sustainability Accounting, Management and Policy Journal, 11(1), 65–98. https://doi.org/10.1108/SAMPJ-06-2018-0158/FULL/PDF
Refinitiv Eikon. (2022). Environmental, social and governance (ESG) scores from Refinitiv. London Stock Exchange Group.
Ruan, L., & Liu, H. (2021). Environmental, Social, governance activities and firm performance: Evidence from China. Sustainability, 13(2), 767. https://doi.org/10.3390/SU13020767
Suretno, F., Adrianto, F., & Alfarisi, M. F. (2022). Effect of environment, social and governance disclosure on firm value. Jurnal Bisnis: Teori Dan Implementasi, 13(2), 121–128. https://doi.org/10.18196/JBTI.V13I2.14458
Tao, C., Hui, D., & Chen, L. (2020). Institutional shareholders and corporate social responsibility. Journal of Financial Economics, 135(2), 483–504. https://doi.org/10.1016/J.JFINECO.2019.06.007
Thomsen, S., & Pedersen, T. (2000). Ownership structure and economic performance in the largest European companies. Strategic Management Journal, 21(6), 689–705.
Velte, P. (2017). Does ESG performance have an impact on financial performance? Evidence from Germany. Journal of Global Responsibility, 8(2), 169–178. https://doi.org/10.1108/JGR-11-2016-0029/FULL/PDF
Whelan, T., Atz, U., Van Holt, T., & Clark, C. (2021). ESG and financial performance. Uncovering the Relationship by Aggregating Evidence from, 1, 2015-2020.
Wu, S., Li, X., Du, X., & Li, Z. (2022). The impact of ESG performance on firm value: The moderating role of ownership structure. Sustainability, 14(21), 14507. https://doi.org/10.3390/su142114507
Zumente, I., & Bistrova, J. (2021). ESG importance for long-term shareholder value creation: Literature vs. practice. Journal of Open Innovation: Technology, Market, and Complexity, 7(2), 127. https://doi.org/10.3390/JOITMC7020127
Copyright (c) 2023 Ivana Kurniawan, Rofikoh Rokhim
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
Authors who publish with this journal agree to the following terms:
- Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution-ShareAlike 4.0 International. that allows others to share the work with an acknowledgement of the work's authorship and initial publication in this journal.
- Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the journal's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgement of its initial publication in this journal.
- Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work.
