This paper explores the contribution of Environmental, Social, and Governance (ESG) performance to the firm value and financial profitability and specifically how financial liquidity moderates this contribution. The study employs the Dynamic Panel System Generalized Method of Moments (GMM) (using a sample of 46 firms in 10 years 2015,2024) to deal with the possibility of endogeneity and performance persistence. The empirical findings show a strong negative correlation between ESG performance and Market Capitalization indicating that initially, the market views ESG spending as a value-destroying expense. Nevertheless, there is a considerable positive correlation between ESG and Earnings Per Share (EPS) which suggests that sustainability practices enhance internal operational efficiency. Most importantly, the moderation analysis shows that financial liquidity (in Current and Cash Ratios) is positively associated with ESG to improve the firm value. This implies that when companies have adequate financial buffer, the adverse market response to ESG is alleviated. The results are crucial to the corporate managers and investors as they highlight that strategic incorporation of ESG needs a strong liquidity position as a guarantee of market confidence and long-term value creation.
Tools: Excel,Stata
Department: Department of Business Studies
Poster
