ASSESSING THE IMPACT OF ESG SCORES ON PROFITABILITY AND MARKET VALUATION OF ESG INDEX LISTED COMPANIES: A MULTIPLE PANEL REGRESSION FRAMEWORK

Abstract

Purpose: The present study examines the impact of environmental, social, and governance (ESG) performance on accounting-based profitability and market valuation in an emerging-market setting. It aims to clarify how ESG investments translate into financial out-comes and whether firm-specific factors condition these effects.

Methodology: Using a quantitative, descriptive research design, secondary ESG and financial data for 194 BSE ESG index companies from 2011 to 2022 were collected via Bloomberg and Prowess. Statistical analysis including descriptive statistics, correlation matrices, multiple panel regressions models, and robustness checks (ADF and Hausman tests) was performed in Excel and Gretl to assess the impact of ESG disclosures on firm performance.

Findings: Overall ESG performance exhibits a significant positive association with Tobin’s Q and a modest positive relationship with firm profitability. The findings reveal that while higher ESG scores slightly reduce short-term return-based profitability (ROE and ROCE), they significantly enhance market valuation (Tobin’s Q), suggesting a trade-off between immediate financial returns and long-term market perception.

Implications: Investors should factor ESG metrics into valuation models, especially governance and social practices. Corporate manag-ers ought to tailor ESG strategies to industry dynamics and balance upfront costs against long term market rewards. Policymakers may refine disclosure standards to reduce reporting inconsistencies and enhance comparability.

Originality: The study provides novel empirical insights into the ESG–performance nexus in an emerging market by applying fixed-effect panel regressions and multi-equation models.