ESG Controversies and Firm Performance with Moderating Role of Board Effectiveness: Evidence from ASEAN

• Published in: Studies in Systems, Decision and Control
• Main Author: Aziz N.H.A.; Alshdaifat S.; Latiff A.R.A.; Osman M.N.H.
• Format: Book chapter
• Language: English
• Published: Springer Science and Business Media Deutschland GmbH 2024
• Online Access: https://www.scopus.com/inward/record.uri?eid=2-s2.0-85203044048&doi=10.1007%2f978-3-031-62106-2_22&partnerID=40&md5=b3b7bc03f75ebff180fea51f9ed7e87f

Environmental Social Governance (ESG) controversies that refer to negative news published by the media may have an immediate impact on a company’s reputation and long-term viability. The study aims to examine the effect of ESG controversies on firm performance using profitability and market value indicators. In addition, this study will test the moderating role of the board effectiveness index in between ESG controversies and firm performance. Using the Thomson Reuters Eikon database, 1212 sample observations, from 2017 until 2022 among ASEAN-listed firms are extracted. This study employed the random panel regression method. The findings revealed that firms without ESG controversies have a significant positive effect on profitability indicators (ROA, ROE and Tobin’s Q). However, for firms with ESG controversies, the result is surprisingly positive and significant with Tobin’s Q. Meanwhile, board effectiveness will strengthen the positive relationship between ESG controversies and firm performance of firms without controversies proxy by ROA and ROE. While for firms with controversies, Board effectiveness will strengthen the relationship of ESGC with Tobin’s Q. The findings emphasize the importance of firms maintaining their business reputation and avoiding any negative ESG news that appears in the media, as well as the role of having a board that is effective and capable of handling the situation on ESG prevention and how to regain the firm's reputation following negative issues. This study, which is believed to be among the earliest investigations in ASEAN focusing on the impact of ESG controversies, will aid companies in formulating strategies related to ESG issues and board composition. Additionally, it will assist policymakers in implementing regulations concerning ESG matters. © The Author(s), under exclusive license to Springer Nature Switzerland AG 2024.