Corporate Sustainability and Firms' Financial Performance: Evidence from Malaysian and Indonesian Public Listed Companies

Abstract

The aim of study is to examine the impact of corporate sustainability (ESG) on the financial performance for Malaysia and Indonesia. A sample was selected comprising of 36 companies listed in Bursa Malaysia and 24 companies listed in Indonesia Stock Exchange over the ten-year period 2010-2019. Using fixed effect (FE) and pooled OLS suggest that ESG practices are positively associated with financial performance. This result implies that companies engaged in environmental, social and governance aspects have a higher shareholder value. A good economy condition encouraged companies to integrate ESG aspects and rewarded investors with good financial return (ROE). Companies with lesser governance practice would increase shareholders value (ROE). Essentially, this empirical evidence confirms stakeholder’s theory and agency theory. The implication of this study is to strengthen the development of sustainability from ESG practice and in line with current agenda of sustainable finance for the policymakers. Indeed, this study encourages more potential investors to invest companies with ESG practices.