The Moderating Effect Analysis of Companies' ESG Performance on the Relationship Between the Relevance and Accurate Reporting of Information and Financial Performance

Abstract

Purpose/Objective: The study explores the moderating effect of ESG performance on the connection between information relevance, accurate representation, and financial performance.

Methodology: The moderating effects were examined based on ESG data available in the Eikon-Refinitiv platform for 2017–2021. A total of 28 regression models were estimated using the Panel Generalised Least Squares method, and four specifications of each model were developed for the ESG score and its components. Financial performance was measured by ROE, ROA, EPS, NetOCF, EBIDTA, and CR indicators.

Findings: Both the ESG score and its three components moderate in a statistically significant manner the relationship between the relevance of financial information and financial performance. The moderation effect is partially confirmed in the case of ROA, ROE, EBITDA, and EPS indicators. Results highlighted that both the ESG score and its components moderate in a statistically significant manner the relationship between the accurate representation of information and financial performance in the case of EPS, Cash_R, and CR indicators.

Implications: The ESG component variables and performance score directly influence the relevance and inversely and significantly influence the accurate representation of financial information. New business performance optimisation models can be designed based on the main findings.

Limitations: The small number of companies in the sample and limits on information available on ESG performance.

Future Research: Expanding the number of companies and variables in the statistical models. Various mathematical models for estimating optimal performance can be tested depending on the size of the data set.

Citation

Foltean, N.I., Bogdan, V. and RUS, L. (2024), "The Moderating Effect Analysis of Companies' ESG Performance on the Relationship Between the Relevance and Accurate Reporting of Information and Financial Performance", Grima, S., Maditinos, D., Noja, G.G., Stankevičienė, J., Tarczynska-Luniewska, M. and Thalassinos, E. (Ed.) Exploring ESG Challenges and Opportunities: Navigating Towards a Better Future (Contemporary Studies in Economic and Financial Analysis, Vol. 116), Emerald Publishing Limited, Leeds, pp. 83-112. https://doi.org/10.1108/S1569-375920240000116006