The Effect of ESG Score on Financial Performance and Financial Distress with ESG Controversies as a Moderating Variable in ASEAN and Indian Emerging Markets

This study examines the association between ESG Score and two financial outcomes, namely financial performance and financial health, and the moderating role of ESG Controversies in both relationships. Prior studies report mixed findings and rarely examine the two outcomes within a single framework in Asian emerging markets. The sample consists of 1,168 firm-year observations from 146 non-financial firms in Indonesia, Malaysia, the Philippines, Thailand, and India over the period 2017–2024, obtained from LSEG Workspace. Financial performance is proxied by return on equity (ROE) and financial health by the Altman Z″-Score, for which a higher value indicates lower distress risk. The data are analysed using panel regression with firm fixed effects, year fixed effects, and standard errors clustered at the firm level, and all inference is two-tailed. ESG Score shows no significant association with either ROE (β = 0.00051; p = 0.984) or the Z″-Score (β = −0.01100; p = 0.457), so the first and second hypotheses are not supported. The ESG × Controversies interaction is negative and significant for ROE (β = −0.001316; p = 0.009) and positive and significant for the Z″-Score (β = 0.000899; p < 0.001), supporting the third and fourth hypotheses. Robustness tests that hold the estimator fixed and vary one element at a time show that the two results are not equally secure: the positive interaction on the Z″-Score survives the exclusion of ROA, country × year fixed effects, a one-year lag, random effects, and the restoration of firms removed by an extreme-value screen, whereas the negative interaction on ROE keeps its direction but loses significance without ROA and reverses when those firms are restored. Marginal-effects analysis locates the sign change at a controversy level of 8.5 for ROE and 20.3 for the Z″-Score. The contribution of this study lies in the evidence that a single moderating construct is associated with opposite interaction signs across two financial outcomes, which suggests that ESG Score and controversy information should be assessed jointly rather than separately. Because the design is observational, the findings should be interpreted as conditional associations rather than as causal effects.