Environmental, Social, and Governance (ESG) Performance and Firm Value: The Moderating Role of Banking-Specific ESG Context

Abstract

This study examines the effect of Environmental, Social, and Governance (ESG) performance on firm value in the banking sector and investigates whether banking-specific ESG context moderates this relationship. Using panel data from 133 bank-year observations covering 26 banks during 2019–2024, the study employs panel regression analysis based on the Common Effect Model, Fixed Effect Model, and Random Effects Model. Model selection is performed using the Chow, Breusch–Pagan Lagrange Multiplier, and Hausman tests. ESG performance is measured using aggregate ESG performance and its environmental, social, and governance dimensions, while firm value is measured using Tobin’s Q. The results show that overall ESG performance has a negative but statistically insignificant effect on firm value. Similarly, environmental, social, and governance performance individually have no statistically significant effects on firm value. The moderation analysis further indicates that banking-specific ESG context does not significantly moderate the relationship between ESG performance and firm value, either at the aggregate level or across individual ESG dimensions. These findings suggest that ESG implementation alone may not be sufficient to generate immediate market valuation benefits. ESG value creation may depend on strategic integration, credible disclosure, effective governance, risk management, and stakeholder recognition.