Linking Profitable Firms With Esg: Evidence From Asian Markets With The Capital Structure As A Moderator

Abstract

This study provides empirical evidence on how financial performance influences ESG score by integrating the moderating role of capital structure. The study adopts a large panel dataset to determine the fixed firm and year effects for examining the impact of Return on Assets (ROA) and Return on Equity (ROE) on the overall ESG and individual performance of environmental, social, and governance dimensions. Importantly, two interaction terms (CS* ROA and CS* ROE) are included to determine whether CS amplifies or dampens the relationship between FP and ESG. The empirical findings suggest that ROA is a persistent and effective predictor of the effect on overall performance, including social, economic, and governance dimensions, while ROE indicates variations across individual performance. The findings imply that ROA, as an operational profitability, is a consistent predictor compared to stakeholder-based returns. Additionally, CS strengthens the relationship between operational profitability and ESG compared to stakeholders' profit. Therefore, this study contributes to existing literature theoretically and practically by integrating a unified structure within the context of Asian economies. Lastly, this study provides implications and future direction for promoting sustainable corporate outcomes through effective financial performance.

Keywords:

Return on Assets, Return on Equity, Capital Structure, ESG practices, Panel Data.