DefinePK

Abstract

The growing importance of Environmental, Social, and Governance (ESG) performance in influencing firm dynamics, particularly by enhancing financial performance serves as the motivation for this research. This study explores the link between environmental, social, and governance (ESG) performance and financial performance in Indian using unbalance panel date of non financial firms listed on the National Stock Exchange (NSE) from 2011 to 2023. Grounded in stakeholder theory and the resource-based perspective, this study hypothesizes a positive relationship between ESG performance and financial performance. Using a fixed effects regression model, the study controls for unobserved heterogeneity across firms, and time periods. To address potential endogeneity issues and confirm the robustness of results, two-stage least squares (2SLS) method, is employed as alternative estimation method along with alternative measurement of financial performance. Additionally, heterogeneity analyses explore variations based on firm size. The findings indicate a significant positive relationship between ESG performance and financial performance, with stronger effects observed in larger firms. This suggests that ESG performance enhances firm financial performance. The study contributes to the literature by providing empirical evidence from an emerging market, highlighting the financial benefits of ESG performance. These insights have practical implications for corporate leaders, investors, and policymakers promoting sustainability while enhancing firm value.