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Abstract

This empirical study aims to identify the impact of the previous year’s ESG (Environment, Social and Governance) ratings on firm performance, assuming a bidirectional and dynamic nature exists. The analysis suggests that if a firm is performing well, it will have an impact not only in the short run but also in the long run. The purpose is to identify the impact in the case of industries. This is an empirical study to identify the impact of ESG ratings on next year’s firm performance. We have used panel data for 10 years (2013–2022) for 568 companies from the industrial sector. Using two-stage least-squares regression analysis and a generalized method of moments, the study suggests a bidirectional relationship, suggesting that the dependent variable is dynamic. We have identified the impact of current and previous year performance on operating, market and financial performance in the industrial sector. The results are found to be significant for operating and market performance. In the case of lagged ESG performance, we have identified the impact on the current year’s financial performance. The results are consistent in the case of current as well as lagged performance. Each pillar of ESG has a different degree of impact in the short and long term.

Keywords

ESG Disclosure Sustainability Firm Performance Panel Data GMM

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Who Is Benefitted from Sustainable Performance? Evidence from the Industrial Sector

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