ESG Ratings and Firm Performance with Moderating Role of Corporate Governance Mechanism: Evidence from Thai Settings

This paper aims to add empirical evidence to the existing literature in the arena of Environmental, Social, and Governance (ESG) information, firm performance, and stock market participation within a Thai context. Based on the dynamic analysis with the two-step system generalized method of moments, the instruments consist of the corporate governance mechanism. Results have indicated that the association between ESG scores and firm performance is statistically significant, with the moderating role of corporate governance. ESG-driven firms tend to have higher firm performance relative to non-ESG-driven firms. The overall result suggests that firm performance is more pronounced when the firm implements ESG policy. However, I argue that results should be interpreted with caution because 1) firm-specific factors may influence the outcome of ESG investment and 2) the outcome of ESG strategies may require a longer time to be identified. This paper also examines whether and how the stock market incorporates ESG information for its decisions. There is a negative association between excess returns and ESG performance. The result suggests that the stock market views ESG information as being able to mitigate information asymmetry. Two different ESG measures based on the Stock Exchange of Thailand and the third-party criteria are employed for the analysis, and I posit that the results based on those measures are qualitatively similar. This will endorse the usefulness of ESG information.