Environmental, Social and Governance (ESG) disclosure, competitive advantage and performance of firms in Malaysia

The objective of this research is to investigate the effects of firms' ESG (Environmental, Social and Governance) disclosures on firm performance, moderated by firm competitive advantage. The sample of the data is 3966 firm-year observations from year 2012-2017 of 661 firms listed in the Bursa Malaysia. To improve the robustness of our analysis we adopt clustering techniques in our regression analysis. The findings of this research indicate that ESG disclosure improves firm performance even after controlling for competitive advantage. We also find consistent evidence that an increase in ESG disclosure by one unit will increase firm performance by approximately 4 percent in Malaysia. The implication of this research is the need to re-examine the level of ESG disclosure and the financing incentive for firms with high ESG disclosure scores as high scores of ESG are associated with higher competitive advantage. Further, policymakers can enhance regulatory frameworks by incorporating ESG across various investment activities and value creation initiatives.