Esg performance and firm value in emerging markets the moderating role of board independence

Abstract

This study examines the relationship between Environmental, Social, and Governance (ESG) performance and firm value within the unique institutional context of Vietnam, an emerging market, with particular attention to the moderating role of board independence. Although the financial implications of ESG initiatives remain contested, we argue that corporate governance quality fundamentally shapes how markets assess and value sustainability efforts. Drawing on a balanced panel dataset of 100 non-financial firms listed on the Vietnamese stock market from 2020 to 2024, we apply a Feasible Generalized Least Squares (FGLS) model to analyze both the direct effect of ESG performance on Tobin’s Q and the moderating influence of board independence. The results indicate that ESG performance exerts a significant negative impact on firm value, reflecting investors’ perception of ESG initiatives as costly in the short term. However, board independence significantly moderates this relationship, alleviating the market’s initial penalty and reinforcing investor confidence in ESG as a long-term value driver. These findings underscore the pivotal role of governance in legitimizing sustainability strategies and offer important implications for both corporate managers and policymakers seeking to leverage governance mechanisms to unlock the financial potential of ESG in emerging economies.