The Impact of Environmental, Social and Governance (ESG) on Firms' Financial Stability: Evidence from Egypt

The purpose of this study is to empirically investigate the effect of the Financial Regulatory Authority (FRA)’s decree no. 108/2021 to measure the impact of the overall and the individual Environmental, Social and Governance (ESG) factors on the firm stability in Egypt; as it is an emerging country. The study sample covers 106 firms listed in the Egyptian Stock Exchange (EGX) during the period 2020 to 2023. Panel regression analysis was used to examine the study hypotheses and achieve the study aims. The results showed that ESG disclosure negatively affects a firm’s stability measured by Z-score. However, measuring ESG subcomponents separately showed that environmental (E), social (S) and governance (G) disclosure are negatively associated with Z-score. More importantly, ESG, E, S and G tend to be higher with firms that have high assets and high block-holders; but ESG, E, S and G tend to be lower with old firms. Furthermore, after the FRA’s decree application, the higher level of ESG, E, S and G disclosure. The study limns a vision of the FRA’s decree no. 108/2021 application on the impact of ESG disclosure on firm stability in Egypt. This study tries to determine whether there are relationships among all ESG disclosure and FS, and if they are positive, negative or even neutral.