Understanding The Reciprocal Link Between Corporate Financial and ESG Performance in Malaysia: Does Company Size Matter?

Sustainability experts are increasingly embracing ESG (environmental, social, governance) as a broader aspect of corporate social responsibility. Scholars note a positive impact on corporate financial performance (CFP) among companies with strong ESG credentials. Recent empirical studies on the ESG-CFP relationship in Malaysia show conflicting results, indicating a complex relationship that requires a robust theoretical frame work. Guided by stakeholder theory and slack resources theory, this study investigates the reciprocal effect of CFP and ESG in the context of a developing country. Based on a sample of 71 Malaysian companies from 2013-2022, the empirical findings indicate a significant bidirectional causal relationship between CFP and ESG. Moreover, as companies undergo rapid growth, their profitability increasingly influences ESG performance, although with a diminishing effect over time. This study reaffirms the concept of ESG-CFP virtuous cycle, providing strong justification for companies to adopt ESG agenda as a strategic imperative for long-term sustainability and value creation. [ABSTRACT FROM AUTHOR]