ESG, Firm Value and It^s Life Cycle: Evidence from South East Asia Areta Xaviera(a), Erna Widiastuty(b), Rahmat Febrianto(b*)
a) Student of Magister Science in Accounting, Faculty of Economics and Business, Andalas University
b) Faculty of Economics and Business, Andalas University
*rahmatfebrianto[at]eb.unand.ac.id
Abstract
Abstract
Our study investigates the effect of ESG performance on the firm value according to the its position in the life cycle. Previous studies are either test the relationship of those three variables in a single country or ignore the effect of company^s life cycle. We extend those studies by testing all three factors in five South East Asian (SEA) countries. This investigation also differs from other studies since we correlate those variables with future firm value.
Samples are non-financial companies listed in the five countries^ stock exchanges, from 2013 to 2022. They are chosen based on the availability of ESG scores provided by Thomson Reuters Eikon. The final 1.080 firm-year samples are tested both in a single test, and we also run the test on single country. Our test results indicate that ESG performance relates to next year^s firm value of SEA companies. Moreover, by testing each country, we find that only Indonesian and Singaporean companies show a positive relationship of ESG performance and firm value. Thailand, on the other hand, shows negative relationship, and Malaysian and Philippines show no relationship.
Next we divide samples into their respective position in life cycle. For the whole samples, the ESG only relates to firm value if the company is in mature state and decline state. All other states show insignificant results. When we test this in each country, mature Malaysian companies show a positive relationship, while growth ones show a negative relationship- growth Thailand firms show a positive association, while mature firms show the opposite sign. Indonesian, Philippines, and Singaporean companies show no relationship between ESG performance and firm value.
Finally, we also test each component of ESG performance, i.e. environment, social, and governance and relate them with firm value. Similar to previous results, the relationships are mixed.
Our results confirm the idea that the effect of ESG-related performance may not be reflected in the current year^s firm value. The impact may be realized in the future. Secondly, the results support previous study that test the different impact of company^s life cycle to the relationship between ESG activity and firm performance.
While we classify company into its position in the life cycle, we do not consider firm strategy, financial condition, and other fundamental factors that may have impact on the relationship between ESG performance and firm value. This may be the agenda for future studies
Keywords: ESG: life cycle- firm value- South East Asian
