Beyond the score: An analysis of ESG impact on performance in Malaysian family firms

Abstract

Environmental, social, and governance (ESG) factors have gained prominence, and stakeholders have begun to place a greater emphasis on a company's performance than they had previously, with a firm's financial success being the primary criterion for evaluation. ESG disclosure is becoming increasingly popular among organizations worldwide as a result of stakeholder demands for greater openness on ESG concerns. The purpose of this study is to explore the relationship between ESG on firm performance focusing on the family firms in Malaysia. Firm performance is being measured using operational return on assets (ROA) and market capitalization through an observation of 441 listed family firms in Malaysia between 2020 and 2022. The results showed that by using market capitalization to represent firm performance, value is positively and significantly impacted by all ESG. This research highlights the significant impact of ESG score on market capitalization. The results suggest that ESG performance, as well as earnings and the choice of audit firm, are key factors influencing market capitalization. These findings have important implications for investors, stakeholders, and companies aiming to understand the drivers of market capitalization in the context of sustainability and financial performance. The research contributes to stakeholders, investors, and decision-makers, as well as regulators, legislators, and academics to better understand ESG and firm performance by using ROA and market capitalization.