Esg-cfp relationship: exploring the moderating role of financial slack


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ABSTRACT PURPOSE This study aims at examining the contentions of the agency theory by exploring the direct relationship between environmental, social and governance (ESG) disclosure score


and corporate financial performance (CFP) from the years 2016–2020. It also tests for the adaptability of slack resources theory by testing this relationship in the presence of a moderating


variable (financial slack). DESIGN/METHODOLOGY/APPROACH The study relies on the data obtained from Bloomberg database of 112 companies belonging to different sectors. It employs the use of


partial least square structure equation modelling (PLS-SEM) for carrying out the empirical analysis. FINDINGS The results obtained show that there exists a negative relationship between ESG


and CFP of the sample firms. These results lend support to the propositions of both the agency theory. Further, the financial slack in the organizations does not ensure a firm's


responsible behavior. RESEARCH LIMITATIONS/IMPLICATIONS The paper provides important implications both from the perspective of managers as well as policymakers. The results of this study


will aid the managers in reducing the instances of information asymmetry in the market, thereby tackling the issue of principle agent problems within an organization. From the policy marking


perspective, the results of this study will help the regulatory authorities in implementing the necessary rules, regulations and laws that will ensure increased participation from the


corporate sector in disclosing their sustainability-related information. ORIGINALITY/VALUE This study is one of its kind to explore the impact of a moderating variable on the ESG-CFP


relationship in the context of an emerging economy. It also contributes to the present stream of literature by providing both a theoretical and empirical support to the propositions under


consideration. KEYWORDS ACKNOWLEDGEMENTS Aanchal Singh extends thanks and gratitude to Jaipuria School of Business, Ghaziabad for the constant support and guidance she received in her


research journey. CITATION Singh, A., Verma, S. and Shome, S. (2025), "ESG-CFP relationship: exploring the moderating role of financial slack", _International Journal of Emerging


Markets_, Vol. 20 No. 2, pp. 469-498. https://doi.org/10.1108/IJOEM-03-2022-0536 PUBLISHER : Emerald Publishing Limited Copyright © 2023, Emerald Publishing Limited