ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) PERFORMANCE, BIG FOUR AUDITORS AND CORPORATE FINANCIAL PERFORMANCE: EVIDENCE FROM MALAYSIA

Abstract

Environmental, Social and Governance (ESG) practices have become increasingly important in promoting corporate sustainability and responsible business conduct as investors, regulators, and other stakeholders place greater emphasis on non-financial performance. Although ESG initiatives are expected to enhance corporate reputation, stakeholder confidence, and long-term competitiveness, empirical evidence regarding their influence on corporate financial performance remains inconclusive, particularly in emerging markets. This study examines the association between ESG performance and corporate financial performance and whether auditor type moderates this relationship among Malaysian listed companies. A balanced panel of 34 non-financial firms from 2015 to 2024 (340 firm-year observations) was analysed. The Hausman test supported the Fixed Effects specification, and the primary inference uses firm-clustered robust standard errors. Return on Assets (ROA) is used as the financial performance measure, while auditor type (Big Four versus non-Big Four) is used as a proxy for auditor quality. In the cluster-robust Fixed Effects model, ESG is positively but not significantly associated with ROA (β = 0.00134, t = 1.52, p = 0.138), and the ESG × Auditor interaction is also statistically insignificant (β = -0.00028, t = -0.62, p = 0.537). Leverage is significantly and negatively associated with ROA (β = -0.131, t = -2.18, p = 0.037). These results indicate that the positive ESG-ROA association observed in the conventional Fixed Effects estimation is not robust to firm-clustered inference and that Big Four status does not strengthen the ESG-ROA relationship. The study contributes recent Malaysian evidence by showing that short-run accounting profitability is more closely associated with capital structure than with ESG scores, while cautioning against interpreting ESG performance as a direct driver of immediate profitability.