The influence of environmental, social, and governance factors on firm performance: Earnings quality as a moderator

This study investigates the impact of Environmental, Social, and Governance (ESG) factors on firm performance, measured by market performance (Tobin’s Q) and financial performance, with Earnings Quality (EQ) as a moderating variable. The sample includes 208 companies listed on the Stock Exchange of Thailand that remained in the Thailand Sustainability Investment (THSI) index for at least five consecutive years (2018–2022). Partial Least Squares Structural Equation Modeling (PLS-SEM) using SmartPLS software was employed for analysis. The results show that the Social (SOC) Score positively affects Return on Assets (ROA), indicating that social activities may enhance financial performance through increased stakeholder trust. In contrast, the Environmental (ENV) Score negatively affects ROA, suggesting that environmental investments may raise costs without short-term financial returns. The Governance (GOV) Score shows no significant effect on either ROA or Tobin’s Q. EQ plays a significant moderating role by strengthening the positive effect of environmental initiatives on Tobin’s Q, particularly in firms with high EQ, which benefit from improved transparency and investor confidence. These findings support Stakeholder and Agency Theory and highlight the importance of aligning ESG practices with strong financial reporting to promote sustainability and maximize market value.