Article2023

Does environmental, social and governance (ESG) affect market performance? The moderating role of competitive advantage

70 citations0/0 files storedCompetitiveness Review An International Business Journal incorporating Journal of Global Competitiveness

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Corporate Social Responsibility Reporting Corporate Finance and Governance Corporate Governance and Financial Management

Abstract

Purpose This research aims to determine the influence of environmental, social and governance (ESG) factors on market performance. The study shows the perspective of ESG on market performance. The study attempted to test the relationship between ESG and Tobin’s Q and the effect of control variables. Design/methodology/approach The study used panel data from a sample covering 720 firms and ran a fixed-effects model regression during the 2007–2019 period for eight European countries’ listed companies. Findings The findings reveal that ESG positively impacts Tobin’s Q. According to the findings, high company ESG performance boosts market performance via the moderator effect of competitive advantage. The results indicate that all control variables are significant. The firm’s leverage has a negative relationship with ESG. The size of the firm impacts ESG positively. Also, the results prove that the firm’s size and industry positively affect Tobin’s Q. Research limitations/implications The findings of this study suggest that managers, practitioners and authorities interested in learning about ESG scores (ESGSs), market performance and competitive advantage might draw intriguing conclusions from the data. Managers can identify the appropriate levels of competitive advantage that improve market performance. Practitioners must determine whether fit, size, growth, leverage and industry could enhance market performance. The findings also give authorities and the board of directors information on future growth opportunities for the company and the country. Originality/value The research presents a vision of how ESG factors affect market performance. This study aims to identify the positive link between ESGSs and European market performance.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1991Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations 1998Initial conditions and moment restrictions in dynamic panel data models 1995Toward a New Conception of the Environment-Competitiveness Relationship 2017ESG performance and firm value: The moderating role of disclosure 2019Environmental, Social and Governance (ESG) Scores and Financial Performance of Multilatinas: Moderating Effects of Geographic International Diversification and Financial Slack 2017Does ESG performance have an impact on financial performance? Evidence from Germany 2018Is sustainability reporting (ESG) associated with performance? Evidence from the European banking sector

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2023The Moderating Role of Technological Innovation on Environment, Social, and Governance (ESG) Performance and Firm Value: Evidence from Developing and Least-Developed Countries 2024Environmental, social, and governance (ESG) disclosure and firm value: the role of competitive advantage as a mediator 2025Harnessing digital transformation and ESG performance for innovation, competitiveness and financial success: insights from European multinationals

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