Do E, S, G, and Overall <scp>ESG</scp> Have the Same Effect on Financial Performance in Southeast Asian Companies?

ABSTRACT This study examines the relationship between environmental, social, and governance (ESG) performance and the financial performance of companies in Southeast Asia. It investigates each pillar of ESG (E, S, and G) and the overall ESG score to provide more comprehensive results through the lens of stakeholder and legitimacy theory. The study employs panel data analysis to examine the dataset of Southeast Asia's listed companies from 2018 to 2022, comprising 660 firm‐year observations. To test the data, this study employs a panel regression technique, where the fixed‐effects model (FEM) is the best approach for estimating the model specifications. The findings reveal that the Environmental, Social, and Governance pillar has a positive and significant influence on financial performance, as measured by Tobin's Q. On the other hand, the study documents that a higher overall ESG score can have a dramatic negative impact on financial performance. According to these findings, this study suggests that companies' managers should focus on certain pillars of ESG if they want to reap the benefits in the short term.