DOES ESG MATTER FOR FINANCIAL PERFORMANCE? INSIGHTS FROM FRENCH FIRMS

This study examines the impact of Environmental, Social, and Governance (ESG) performance and financial structure on the corporate performance of French firms. Using a 15-year panel dataset covering 100 companies from 2010 to 2024, financial performance is assessed by four indicators: Economic Value Added (EVA), Return on Assets (ROA), Return on Equity (ROE), and Tobin’s Q. To address potential endogeneity and the persistence of performance, the analysis employs dynamic panel estimations via the System Generalized Method of Moments (GMM). The results reveal a heterogeneous and context-dependent relationship between ESG practices and financial outcomes. Specifically, the impact of ESG initiatives appears more pronounced in the long term. While the ESG score has a neutral effect on EVA and ROE, it exhibits a small but statistically significant short-term negative effect on ROA and Tobin’s Q, likely reflecting compliance costs and upfront investments in sustainability. Additionally, financial structure emerges as a key determinant of both operational efficiency positively affecting ROE and Tobin’s Q and market valuation. Firm size consistently shows a strong negative and significant effect on EVA, ROA, and Tobin’s Q, suggesting that larger firms may experience inefficiencies associated with scale.