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Distinctive impacts of ESG pillars on corporate financial performance: A random forest analysis of Korean listed firms

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  • Jin, Yangsoo

Abstract

This study investigates the distinct effects of the environmental, social, and governance (ESG) pillars on corporate financial performance (CFP) measured by ROE and ROA. Using a random forest regression on a sample of Korean-listed firms, we address the positive correlations among these pillars and explore the nonlinear relationships between CFP and individual pillars without pre-specified functional forms. The findings indicate that both environmental and governance performances positively affect CFP, with environmental performance having a more substantial impact but diminishing returns at higher levels. Social performance negatively affects CFP. The environmental pillar emerges as the most reliable predictor of CFP.

Suggested Citation

  • Jin, Yangsoo, 2025. "Distinctive impacts of ESG pillars on corporate financial performance: A random forest analysis of Korean listed firms," Finance Research Letters, Elsevier, vol. 71(C).
    • Handle: RePEc:eee:finlet:v:71:y:2025:i:c:s1544612324014247
    DOI: 10.1016/j.frl.2024.106395
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    References listed on IDEAS

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    Cited by:

    1. Carlo Drago & Alberto Costantiello & Massimo Arnone & Angelo Leogrande, 2025. "Bridging Sustainability and Inclusion: Financial Access in the Environmental, Social, and Governance Landscape," Working Papers hal-05082520, HAL.

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    More about this item

    Keywords

    ESG pillars; Corporate financial performance; Diminishing returns; Random forest regression;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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