The Moderating Role of Technological Innovation on Environment, Social, and Governance (ESG) Performance and Firm Value: Evidence from Developing and Least-Developed Countries

Abstract

Recently, there has been growing recognition of the significance of environmental, social, and governance (ESG) factors in assessing a company’s performance and worth. Previous research has failed to take into account the significant impact of technological innovation in their empirical investigations. This study fills the gap by investigating the moderating impact of technological innovation on ESG performance and company value in developing and least-developed countries. The study utilized secondary data from 78 pharmaceutical companies from 2009 to 2022. For the investigation, we used the pooled mean group (PMG) and generalized methods of moments (GMM) estimators. The findings reveal that environmental and social performance influence firms’ value; however, governance performance does not influence firms’ value. Additionally, technological innovation acts as a catalyst, strengthening the favorable influence of ESG performance on firm value. The findings affirm the need to incorporate technological innovation, as it enables pharmaceutical firms to implement more efficient and sustainable practices.

Mapping the Landscape of the Literature on Environmental, Social, Governance Disclosure and Firm Value: A Bibliometric Analysis and Systematic Review

“…For example, Mardini [125] shows that the company's performance is positively affected by governance and environmental factors, while it is negatively affected by social factors. Kong et al [126] indicated that governance does not affect firm value, while environmental and social performance have a positive effect. Gregory et al [127] argue that companies' adoption of their ESG responsibilities is evidence of their commitment to their social duties imposed by the government and society.…”

“…Khalil et al [141] divided innovation into two parts: an important environmental innovation that enhances the company's value and a traditional innovation that negatively affects the firm's value as a result of activating carbon emissions, which affects ESG performance. Kong et al [126] showed that innovation works as a catalyst in improving the relationship between ESG performance and firm value, which contributes to implementing practices with high efficiency and achieving sustainability. Finally, it can be said that innovation contributes to improving the role that ESG performance plays in adding value to firms, especially in light of rapid environmental changes and facing sudden crises such as COVID-19.…”

Assessing the Role of Sustainability Disclosure on Firms’ Financial Performance: Evidence from the Energy Sector of Belt and Road Initiative Countries

“…This study adopted and modified a model by [50] due to its relevance in exploring the connection between sustainability disclosures and financial performance. The following is the presentation of this model, which has strong empirical support and serves as a solid framework for this study:…”

ESG Performance and Corporate Resilience: An Empirical Analysis Based on the Capital Allocation Efficiency Perspective

“…In addition, some scholars have separately discussed the economic consequences of the three dimensions of ESG performance. Kong [28] believed that environmental and social performance affect firm value, but governance performance does not. Li [29] found that environmental factors are the most important factor in China's green finance investment decisions, followed by governance and social factors.…”