Effect of Environment, Social, and Governance on Financial Performance and Investor Reaction: An Empirical Evidence from Thai Listed Companies.

Abstract

In recent years, the disclosure of environmental, social, and governance (ESG) information has been recognized as a critical tool for reducing information asymmetry between organizations and investors. ESG data serves as a signal reflecting transparency, reliability, and a commitment to organizational sustainability. The objectives of this study were as follows: Firstly, to examine the level of ESG disclosure among Thai listed companies from 2019 to 2022. Secondly, to investigate the impact of ESG disclosures on financial performance and investor reactions during the same period. Thirdly, to analyze the relationship between financial performance and investor reactions. Fourthly, to explore the mediating role of financial performance in the relationship between ESG disclosures and investor reactions. and finally, to evaluate the impact of shareholder structure, particularly institutional and foreign ownership, on ESG disclosures. The study covered the period from 2019 to 2022, utilizing a sample of 119 companies and 406 observations. Secondary data were analyzed using statistical regression with unbalanced panel data, incorporating both cross-sectional and time-series analysis.

The findings revealed the following: Firstly, the level of ESG disclosure among Thai listed companies significantly increased in 2021 and 2022, corresponding with the transition from voluntary to mandatory disclosure. Environmental disclosures emphasized supply chain management, water management, and energy efficiency. Social disclosures focused on ethics and human resource management, while governance disclosures prioritized the independence of the executive board. Secondly, ESG disclosures, both overall and by dimension, had a positive and significant impact on investor reactions. Thirdly, ESG disclosures did not significantly affect short-term financial performance. Fourthly, financial performance did not serve as a mediating variable between ESG disclosures and investor reactions in the context of the Thai capital market. Lastly, institutional ownership positively influenced environmental disclosures, whereas foreign shareholding had no significant effect across any ESG dimensions.

This research supports signaling theory and legitimacy theory in explaining how ESG disclosures reduce information asymmetry and enhance investor confidence. Additionally, it extends agency theory by highlighting the role of shareholder structure in promoting transparency through ESG disclosures. The study provides practical recommendations for companies and regulators to enhance comprehensive and systematic ESG reporting, thereby supporting the sustainable development of Thailand's capital market. Investors can also leverage ESG information for risk assessment and to identify long-term opportunities by considering all three ESG dimensions.

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