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The impacts of environmental, social, and governance factors on firm performance: Panel study of Malaysian companies

Ruhaya Atan (Faculty of Accountancy, Universiti Teknologi MARA, Shah Alam, Malaysia)
Md. Mahmudul Alam (School of Economics, Finance and Banking, Universiti Utara Malaysia, Sintok, Malaysia)
Jamaliah Said (Accounting Research Institute, Universiti Teknologi MARA, Shah Alam, Malaysia)
Mohamed Zamri (Accountants General Office, Government of Malaysia, Putrajaya, Malaysia)

Management of Environmental Quality

ISSN: 1477-7835

Article publication date: 12 March 2018

11833

Abstract

Purpose

The ESG factor, which consists of environmental, social, and governance factors, represents the non-financial performance of a company. United Nations Principles for Responsible Investment invites investors to consider ESG issues when evaluating the performance of any company. Moreover, nowadays, the contribution of corporations towards sustainable development is a major concern of investors, creditors, government, and other environmental agencies. Therefore, the purpose of this paper is to examine the impact of ESG factors on the performance of Malaysian public-limited companies (PLC) in terms of profitability, firm value, and cost of capital.

Design/methodology/approach

A total of 54 companies are selected from Bloomberg’s ESG database that has complete ESG and financial data from 2010 to 2013. This study conducted panel data regressions such as the pooled OLS, fixed effect, and random effect.

Findings

Based on the regression results, there is no significant relationship between individual and combined factors of ESG and firm profitability (i.e. ROE) as well as firm value (i.e. Tobin’s Q). Moreover, individually, none of the factors of ESG is significant with the cost of capital (weighted average cost of capital, WACC), but the combined score of ESG positively and significantly influences the cost of capital (WACC) of a company.

Practical implications

As this is a new study on Malaysia, the findings of this study will be useful to investors, SRI analysts, policy makers, and other related agencies.

Originality/value

To the best of the authors’ knowledge, this study is among the first empirical study to examine the impact of ESG factors on the performance of Malaysian PLC in terms of profitability, firm value, and cost of capital.

Keywords

Citation

Atan, R., Alam, M.M., Said, J. and Zamri, M. (2018), "The impacts of environmental, social, and governance factors on firm performance: Panel study of Malaysian companies", Management of Environmental Quality, Vol. 29 No. 2, pp. 182-194. https://doi.org/10.1108/MEQ-03-2017-0033

Publisher

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Emerald Publishing Limited

Copyright © 2018, Emerald Publishing Limited

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