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Detecting corporate ESG performance: The role of ESG materiality in corporate financial performance and risks

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  • Yang, Sharon S.
  • Huang, Jr-Wei
  • Chen, Hong-Yi
  • Tsay, Min-Hung

Abstract

In line with the Sustainability Accounting Standards Board (SASB) guidelines, this study constructs SASB ESG Scores for firms and evaluates their influence on financial performance and risks. Empirical evidence shows a positive association between a firm’s SASB ESG Score and financial performance, along with a negative link to financial risks. In contrast, the ESG Disclosure Score fails to predict a firm’s financial performance and risks. Furthermore, the effect of the SASB ESG Score on profit is associated with higher market competitiveness and greater operational efficiency. On the other hand, the risk reduction is associated with the mitigation of stock price crash risks. The piecewise linear regression analysis suggests that superior SASB ESG Scores are linked to enhanced financial performance and reduced financial risks. We attribute the findings to the efficient allocation of resources toward ESG activities that hold material significance within a firm’s specific industry.

Suggested Citation

  • Yang, Sharon S. & Huang, Jr-Wei & Chen, Hong-Yi & Tsay, Min-Hung, 2025. "Detecting corporate ESG performance: The role of ESG materiality in corporate financial performance and risks," The North American Journal of Economics and Finance, Elsevier, vol. 76(C).
    • Handle: RePEc:eee:ecofin:v:76:y:2025:i:c:s1062940825000105
    DOI: 10.1016/j.najef.2025.102370
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    More about this item

    Keywords

    CSR; ESG disclosure score; Financial performance; Financial risk; Material issues; SASB ESG score;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General

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