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ESG ratings and corporate financial performance in South Africa.

Authors :
Chininga, Emmerson
Alhassan, Abdul Latif
Zeka, Bomikazi
Source :
Journal of Accounting in Emerging Economies; 2024, Vol. 14 Issue 3, p692-713, 22p
Publication Year :
2024

Abstract

Purpose: This paper examines the effect of ESG ratings and its dimensions (environmental, social and governance) on the financial performance of JSE-listed firms included in FTSE/JSE Responsible Investment Index. Design/methodology/approach: The paper employs panel data covering 40 JSE-listed firms included in FTSE/JSE Responsible Investment Index between 2015 and 2019. The paper employs the two-stage least squares (2SLS) instrumental variable regression technique to estimate the effect of ESG ratings and its dimensions (environmental, social and governance) on both accounting- and market-based performance indicators. Findings: The results of the two-stage least squares instrumental estimation analysis reveal that investment in ESG initiatives improves both accounting- and market-based indicators of financial performance. Of the ESG pillars, the paper finds environmental initiatives improves firms' financial bottom line and market performance, while a firm's social and governance practices are observed to have no effect on a firm's accounting and market performance measures. Practical implications: The insights from this study proffers policy implications for firms' management, investors and regulatory authorities. Originality/value: As far as the authors are concerned, this paper presents the first empirical analysis on the contribution of ESG ratings on financial performance in South Africa. [ABSTRACT FROM AUTHOR]

Details

Language :
English
ISSN :
20421168
Volume :
14
Issue :
3
Database :
Complementary Index
Journal :
Journal of Accounting in Emerging Economies
Publication Type :
Academic Journal
Accession number :
177246224
Full Text :
https://doi.org/10.1108/JAEE-03-2023-0072