ESG performance, ESG controversies and firm market value across lifecycle stages : evidence from Asia-Pacific firms

Abstract

This study examines how Environmental, Social, and Governance (ESG) performance and its individual pillars affect firm market value across different lifecycle stages among listed non-financial firms in the Asia-Pacific region and investigates whether ESG controversies moderate this relationship. Drawing on stakeholder theory, the resource-based view, signaling theory, and legitimacy theory, the study advances the theoretical prediction that the financial value of ESG investment is conditional on a firm's developmental position, being shaped by lifecycle-stage-specific differences in organizational slack, stakeholder salience, reputational capital, and legitimacy pressures. Using a multi-country panel dataset of 1,511 non-financial firms across 12 Asia-Pacific economies over the period 2015 to 2024, comprising 9,976 firm-year observations, the study employs a high-dimensional fixed effects panel regression framework with standard errors clustered at the firm level. Firm lifecycle stages are classified annually using the cash flow-based methodology of Dickinson (2011). The baseline results confirm a positive and significant effect of aggregate ESG performance (b = 0.0020, p < 0.01; approximately 3.8% per standard deviation, USD 141 million for the median firm) on Tobin's Q, with the Social and Governance pillars driving this relationship while the Environmental pillar is statistically insignificant a finding attributed to the institutional voids in environmental regulation that characterize many Asia-Pacific emerging economies. Lifecycle heterogeneity analysis reveals that ESG performance generates no statistically significant valuation premium in Introduction or Growth stage firms, while the ESG-value relationship is positive and significant in both the Mature stage (β = 0.0024, p < 0.01) and the Shakeout/Decline stage (β = 0.0045, p < 0.01). The Shakeout/Decline stage generates an ESG valuation premium that is economically comparable to Mature firms is consistent with legitimacy theory's prediction that ESG serves as a strategic reputational repair mechanism for distressed firms facing heightened stakeholder scrutiny. Moderation analysis using the Refinitiv ESG Controversies Score (ESGCON) confirms that controversy exposure significantly attenuates the positive ESG-value relationship, with this moderating effect concentrated specifically among Mature-stage firms where investors are most sensitive to credibility gaps between stated ESG commitments and actual conduct. The findings survive four robustness checks encompassing an alternative dependent variable, a temporal precedence specification, a stricter industry-year fixed effects structure, and alternative winsorization thresholds. This study contributes to the sustainable finance literature by providing the first simultaneous integration of cash flow-based lifecycle classification, pillar-level ESG disaggregation, and a 12-country Asia-Pacific panel, and by establishing that controversy moderation of ESG value is itself lifecycle-dependent. The results carry direct practical implications for corporate ESG strategy, institutional investor screening, and regulatory policy design across the institutionally diverse Asia-Pacific region.