The effect of environmental, social, and governance (ESG) on firm performance: the moderating role of country regulatory quality and government effectiveness in ASEAN

Figures & data

Table 1. Sample selection.

	Malaysia	Philippines	Singapore	Thailand	Indonesia
Total dataset (population)	554	162	380	434	330
Exclusion of financial sector	(18)	(10)	(4)	(16)	(3)
Data used for analysis (sample)	536	152	376	418	273
Percentage of dataset used for analysis (sample)	31%	9%	21%	24%	16%

Figure 1. Research model.

Table 2. Variable operationalization.

Variable	Function	Variable operationalization
Firm performance (PERF)	Dependent variable	Financial indicator measured using net profit margin (NPM), Return on Assets (ROA), and Operating Profit Margin (OPM)
Environmental performance (ENVI)	Independent variable	Refinitiv Eikon ESG Database – Environmental Pillars
Social performance (SOC)	Independent variable	Refinitiv Eikon ESG Database – Social Pillars
Governance performance (CG)	Independent variable	Refinitiv Eikon ESG Database – Governance Pillars
Firm size (SIZE)	Control Variable	Scale of the firm measured using Natural Log (LN) of total assets
Regulatory quality (REQUAL)	Moderating variable	Country regulation quality index released by World Bank
Government effectiveness (GOVEC)	Moderating variable	Country government effectiveness index released by World Bank

Table 3. Fixed effect regression analysis.

	Without fixed effect categorical variable			With fixed effect categorical variable
	NPM	OPM	ROA	NPM	OPM	ROA
Environmental performance	−0.00180 (0.489)	−0.00075 (0.855)	−0.00025 (0.110)	−0.00145 (0.598)	−0.00047 (0.914)	0.00008 (0.619)
Social performance	−0.00180 (0.538)	0.00706 (0.127)	0.00022 (0.200)	0.00237 (0.443)	0.00769 (0.116)	0.00017 (0.348)
Governance performance	0.00502 (0.015)*	−0.00553 (0.091)	0.00009 (0.452)	0.00498 (0.018)*	−0.00502 (0.132)	0.00012 (0.326)
Firm size	0.02839 (0.846)	0.00927 (0.968)	0.01160 (0.193)	0.04631 (0.781)	−0.00502 (0.722)	0.00507 (0.607)
Country effect	No	No	No	Yes	Yes	Yes
Industry effect	No	No	No	Yes	Yes	Yes
Year effect	No	No	No	Yes	Yes	Yes
Observations	1755	1755	1755	1755	1755	1755
Group	360	360	360	360	360	360
R-square	0.0053	0.0037	0.0133	0.0134	0.0135	0.0703

* p < 0.05.

Table 4. Moderating effect of regulatory quality.

	NPM	OPM	ROA
Environmental performance (EP)	−0.01268 (0.232)	−0.00577 (0.731)	−0.00156 (0.013)
Social performance (SP)	.012423 (0.289)	0.03721 (0.045)	0.00170 (0.014)
Governance performance (GP)	0.01709 (0.049)	−0.03514 (0.011)	−0.00033 (0.516)
Regulatory quality	0.02669 (0.029)	0.01879 (0.331)	0.00100 (0.167)
EP* Regulatory quality	0.00016 (0.265)	0.00008 (0.733)	0.00002 (0.006)*
SP* Regulatory quality	0.01242 (0.360)	−0.00041 (0.114)	−0.00002 (0.025)*
GP* Regulatory quality	0.01709 (0.141)	0.00042 (0.025)*	0.00000 (0.398)
Country effect	Yes	Yes	Yes
Industry effect	Yes	Yes	Yes
Year effect	Yes	Yes	Yes
Observations	1755	1755	1755
Group	360	360	360
R-square	0.0178	0.0195	0.0779

* p < 0.05.

Table 5. Moderating effect of government effectiveness.

	NPM	OPM	ROA
Environmental performance (EP)	−0.02018 (0.082)	−0.00980 (0.592)	−0.00209 (0.002)
Social performance (SP)	0.01674 (0.178)	0.05461 (0.005)	0.00207 (0.005)
Governance performance (GP)	0.01876 (0.045)	−.050361 (0.001)	−0.00045 (0.407)
Government effectiveness	0.02877 (0.006)	.020149 (0.218)	0.00171 (0.005)
EP* government effectiveness	0.00025 (0.100)	.000126 (0.602)	0.00002 (0.001)*
SP* government effectiveness	−0.00019 (0.241)	−0.00062 (0.019)*	−0.00002 (0.011)*
GP*government effectiveness	−0.00019 (0.114)	0.00060 (0.019)*	0.0000 (0.341)
Country effect	Yes	Yes	Yes
Industry effect	Yes	Yes	Yes
Year effect	Yes	Yes	Yes
Observations	1755	1755	1755
Group	360	360	360
R-square	0.0214	0.0252	0.0886

Table 6. Endogeneity test.

	Base line regression	Instrumental variable (IV) regression
		Endogenous*	Endogenous**
	NPM	NPM	NPM
Environmental performance*	−0.0014 (0.598)	−0.0079 0.351	0.0021 0.715
Social performance**	0.0023 (0.443)	0.0062 0.341	−0.0050 0.595
Governance performance	0.0049 (0.018)	0.0054 0.011	0.0057 0.012
Size	0.04631 (0.781)	0.0770 0.630	0.0781 0.627
Country effect (IV)	Yes	Yes	Yes
Industry effect (IV)	Yes	Yes	Yes
Year effect (IV)	Yes	Yes	Yes
Model	Fixed effect	Fixed effect	Fixed effect
Observations	1755	1755	1755
Group	360	360	360
R-square	0.013	0.0013	0.0013

Data availability statement

Data is available upon request (Corresponding Author: Sofik Handoyo).