Environmental, social, and governance factors in emerging markets: The impact on firm performance

This article investigates whether firm-level financial performance is positively associated with environmental, social, and governance (ESG) scores in emerging markets. The vast majority of extant research in this area has been conducted in developed countries, and in light of this research gap, our study examines these issues using a multi-industry sample of firms located in 24 leading emerging markets. Using the stakeholder management and institutional theories, we develop and test our hypotheses by applying linear regression analyses on panel data from over 600 firms drawn from the Thompson Reuters Eikon database between the years 2014 and 2018. The results suggest that, after controlling for firm size and leverage, firms with higher ESG scores experience greater levels of profitability. A number of policy and managerial implications are explored based on these findings. This study adds to our further understanding of the relationship between ESG activities and firm performance in emerging markets.