Research Paper
Article citation: Gupta, R., Sinha Ray, R., Sharma, T., & Sharma, G. (2025). How do ESG-centric social disclosures influence the financial performance of firms? An Indian perspective based on the system GMM approach. Applied Economics, 1-18.
Abstract
This study aims to investigate the effects of the overall ESG score, along with the scores of its individual components, i.e. environmental, social and governance, on the financial performance of firms. Special emphasis is laid on three social indicators, viz. CSR expenditure, employee turnover and female workforce participation. Entailing panel data from a representative sample of 22 publicly listed companies on the National Stock Exchange of India, covering the period from 2015 to 2022, the research employs a dynamic analysis using the system GMM approach. The findings indicate a positive relationship between the overall ESG score and return on equity, although individual impacts of environmental, social, and governance scores differ. The research also reveals that employee turnover is associated with positive signals via return on assets, while social disclosure score, employee turnover rate, CSR expenditure, and female workforce participation convey negative signals to investors through return on equity. Notably, female workforce participation positively influences profitability, whereas CSR expenditure affects profits negatively. These findings underscore the prevailing policy bias towards environmental concerns and, therefore, recommend the requirement of enhancing social indicators to foster social legitimacy.