ESG Performance, Controversies, and Market Capitalization in Southeast Asia: The Moderating Effects of Regulatory Quality

Abstract

Purpose: The study examines the influence of Environmental, Social, and Governance (ESG) performance and ESG controversies on market capitalization and explore the potential moderating role of regulatory quality among publicly listed companies in Southeast Asia.

Methods/Study design/Approach: Using a quantitative approach and Fixed Effects Model with robust standard errors, this study analyzes unbalanced panel data of 771 companies across seven Southeast Asian countries (2015–2025) sourced from Refinitiv Eikon and the World Bank. Data were analyzed using panel data regression and Moderated Regression Analysis (MRA) with the Fixed Effects Model.

Result/Findings: Our findings reveal that ESG performance positively affects market capitalization. Intriguingly. Baseline estimations show that ESG controversies (where lower scores indicate higher controversy) positively influence market capitalization, suggesting that emerging markets in Southeast Asia may prioritize financial return or media visibility over ESG-related controversy risks. However, regulatory quality strengthens the positive valuation of high ESG performance while servings as a crucial institutional boundary condition that dampens this anomalous market valuation of controversial firms.

Novelty/Originality/Value: Moving beyond previous studies focusing on national culture or takeover vulnerability, our study becomes one of the earliest studies that introduces a comprehensive institutional framework by simultaneously examining ESG performance, controversies, and the conditional buffering mechanism of country-level regulatory quality.