ESG Score, Board Structure and Financial Performance: Evidence from Malaysia and Indonesia Public Listed Companies

Nurul Nazlia Jamil; Ersa Tri Wahyuni

doi:10.33102/jmifr.650

Authors

Nurul Nazlia Jamil Faculty of Economics and Muamalat, Universiti Sains Islam Malaysia, 71800 Nilai, Negeri Sembilan, Malaysia. https://orcid.org/0000-0003-2471-9397
Ersa Tri Wahyuni Department of Accounting, Faculty of Economics and Business, Universitas Padjadjaran, Bandung, 40132, Indonesia.

DOI:

https://doi.org/10.33102/jmifr.650

Keywords:

ESG Score, board of directors, financial performance, Malaysia, Indonesia, Return On Assets.

Abstract

Concerns regarding the three ESG dimensions—Environmental, Social and Governance, have gained increasing attention due to the growing importance of sustainability reporting. This study aims to examine the relationship between ESG scores, board structures and the financial performance of companies in Malaysia and Indonesia. A convenient sampling comprising 354 companies listed on Bursa Malaysia and 88 companies listed on the Indonesia Stock Exchange were selected for the year 2023. The study investigates the effect of ESG scores as the independent variable, with board structure serving as the moderating variable. Leverage and company size are included as the control variables, while return on assets (ROA) represents the dependent variable. The results reveal a positive relation between ROA and the ESG scores, indicating that companies focusing on ESG dimensions tend to achieve improved financial performance. Furthermore, the findings provide empirical support for both for both agency theory and legitimacy theory. This research also highlights practical policy implications and managerial practices that can be adopted to foster an environment conducive to sustainable finance.

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