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How do ESG activities affect corporate performance?

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  • Fang Chen Kao

Abstract

This study investigates the impact of a company's environmental, social, and governance (ESG) activities on its financial performance. The COVID‐19 pandemic has caused unexpected difficulties in the operations of most companies, leading to a significant deterioration in their financial performance. We use empirical analysis to examine whether a company's ESG activities affect its financial performance. We employ the context‐dependent data envelopment analysis (DEA) model to evaluate the performance and provide a benchmark‐learning roadmap for 27 photoelectric companies in Taiwan. We also compare the marketability, innovation ability, and profitability of three sub‐industries: camera modules, optical component lenses, and optical components. Furthermore, we utilize a combination of classical DEA, stratification DEA, measurement of attractiveness, and progress for company evaluation. The results indicate that validating sustainability reports has a positive information effect, and high‐quality Global Reporting Initiative‐based external third‐party confirmed reports possess relatively high credibility, readability, and information value. The content and quality of these reports have an impact on performance. These findings offer insights into the role of ESG activities in the photoelectric industry and can help managers reflect upon and justify their choice to invest in specific ESG activities. Therefore, this research highlights the importance of green operations for firms.

Suggested Citation

  • Fang Chen Kao, 2023. "How do ESG activities affect corporate performance?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(7), pages 4099-4116, October.
    • Handle: RePEc:wly:mgtdec:v:44:y:2023:i:7:p:4099-4116
    DOI: 10.1002/mde.3944
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    9. Thu Huong Tran & Wen‐Min Lu & Irene Wei Kiong Ting & Hsueh‐Li ( Shirley) Huang & Muhammad Ashraf Fauzi, 2024. "Examining the impact of board gender diversity and regional differentiation in the ESG‐corporate performance nexus: Evidence from financial service industry," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 45(6), pages 4105-4124, September.
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