How does esg performance enhance financial flexibility? Empirical evidence from listed firms in developing Asian region countries

Abstract

The performance of ESG (Environmental, Social, and Governance) criteria in recent years has been widely favored by many businesses to strengthen the financial flexibility of the company, especially during periods of volatility. However, is ESG truly an effective "pawn" in the strategy aimed at increasing financial flexibility and sustainable development of businesses, or is ESG just a transient "trend"? Confronted with this question, our research is conducted with the purpose of verifying the relationship between ESG and the financial flexibility of businesses during uncertain times, thereby demonstrating the importance of ESG performance for the development strategy of companies. Using data collected from Eikon Financial Analysis & Trading Software | Refinitiv, with 199 companies in the Energy, Materials, Construction, and Industrial sectors according to the Global Industry Classification Standard (GICS) from developing countries in the Asian region (China, India, Vietnam, Hong Kong, etc.) during the period 2017 – 2021, the total number of observations is 480. The author group employs various models in the study, including Ordinary Least Squares (OLS) regression models, Fixed Effects Models (FEM), Random Effects Models (REM), Generalized Least Squares (GLS), and Generalized Method of Moments (GMM). The research results provide evidence of the positive impact of ESG performance on the financial flexibility of companies, especially during turbulent times. The empirical evidence from the study aligns with the research objectives set by our author group and is expected to become a reference for business managers in formulating strategies during volatile periods.