Sustainability, Governance, and Value Creation: Evidence from Financial and Non-Financial Firms in South Africa

Abstract

This study investigates the relationship between environmental, social, and governance disclosure and firm performance, while accounting for the moderating roles of corporate governance and firm location within firms listed on the Johannesburg Stock Exchange. Grounded in stakeholder theory, legitimacy theory, and agency theory, the study examines whether sustainability disclosure enhances or constrains firm value in an emerging market context characterized by institutional heterogeneity. A quantitative research design is employed using a balanced panel dataset of listed firms over multiple years. The empirical analysis utilizes a fixed effects regression model with time effects to control for unobservable heterogeneity and macroeconomic dynamics, while robust standard errors address potential econometric issues. Firm performance is proxied through financial indicators, and key explanatory variables include environmental, social, and governance scores, governance quality, firm size, leverage, earnings per share, growth, and firm location. The findings reveal that environmental, social, and governance disclosure has a negative and statistically significant effect on firm performance in the financial sector, while its impact remains weak and insignificant in the non-financial sector. Corporate governance significantly enhances performance in the financial sector but shows no meaningful effect in the non-financial segment. Firm size consistently improves performance, whereas leverage and earnings per share exhibit mixed effects across sectors and firm categories. Sub-sample analysis further confirms that the negative association between environmental, social, and governance disclosure and performance persists across both small and large financial firms. The results highlight the importance of institutional context, suggesting that sustainability practices and governance mechanisms yield different outcomes depending on sectoral and locational dynamics. These findings provide important implications for policymakers and firms seeking to align sustainability strategies with financial performance in emerging markets.