Unearthing the Nexus between ESG and Financial Performance: Does Company Size and Age Matter?

DOI

10.2991/978-94-6463-342-9_30How to use a DOI?

Keywords

ESG; Financial Performance; Company Size; Company Age; Small and Medium Enterprises; Manufacturing SMEs

Abstract

Regardless of how embracing eco-friendly practices provides firms with a competitive edge, the associated financial strain remains a prominent concern. This research aims to explore the effect of ESG scores on the financial performance of small and medium enterprises (SMEs). To unravel these relationships, the research investigates whether the firm size and age act as moderating factors in this context. Despite a burgeoning body of literature, the relationship between environmental, societal, and governance (ESG) disclosures and firm-level financial performance remains a subject of ongoing debate, marked by conflicting findings and contradictory outcomes. To address this gap, this study examines how the moderating factors of company age and size influence this relationship, particularly within the unique context of emerging economies. Drawing on a sample of 110 manufacturing SMEs from the Federation of Malaysian Manufacturers database, a moderation analysis is performed to assess the influence of firm size and age on the nexus between ESG disclosures and financial performance. For the empirical assessment of the hypothetical model Partial Least Square Structural Equation Modelling (PLS-SEM) is employed to assess the construct’s reliability and validity, discriminant validity-heterotrait-monotrait ratio (HTMT), and collinearity statistics (VIF). Moreover, an initial analysis has been undertaken to examine the descriptive statistics and construct a correlation matrix. The study unveils a discernible moderating effect, indicating that the presence of smaller enterprises diminishes the nexus between ESG practices and financial performance. The outcome conforms to the prevalent conjecture that ESG endeavors with less developed or small firms may exhibit ineffectiveness due to constraints, including limited financial resources, restricted experience, and evolving reputation. By delving into the role of these internal dimensions and their moderating influence, this study illuminates a crucial yet often neglected perspective in the discourse surrounding ESG and financial performance. This study contributes substantially to the existing body of knowledge by unraveling the intricate interplay between ESG practices and financial performance. In transcending the traditional focus on larger enterprises, this study offers a lens to analyze internal determinants and their contextual dynamics. The findings not only enrich scholarly deliberations but also bear practical implications for business managers and policymakers. In sum, this study paves the way for future explorations in this domain and extends an invaluable resource for scholars, practitioners, and decision-makers alike.

Copyright

© 2023 The Author(s)

Open Access

Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

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TY  - CONF
AU  - Farah Akhtar
AU  - Abdelhak Senadjki
AU  - Vikniswari Vija Kumaran
PY  - 2023
DA  - 2023/12/31
TI  - Unearthing the Nexus between ESG and Financial Performance: Does Company Size and Age Matter?
BT  - Proceedings of the 11th International Conference on Business, Accounting, Finance and Economics (BAFE 2023)
PB  - Atlantis Press
SP  - 410
EP  - 435
SN  - 2352-5428
UR  - https://doi.org/10.2991/978-94-6463-342-9_30
DO  - 10.2991/978-94-6463-342-9_30
ID  - Akhtar2023
ER  -