ESG and Operating Performance of Listed Industrial Firms in Japan: The Moderating Role of Firm Size

Abstract

Purpose: This study examines the impact of Environmental, Social, and Governance (ESG) factors on the operating performance of listed industrial firms in Japan, while also investigating the moderating effect of firm size on this relationship.
Design/methodology/approach: The study employs panel data from 60 industrial firms listed on the Tokyo Stock Exchange over the period 2013–2023. Panel regression techniques are applied, with the System Generalized Method of Moments (S-GMM) used to address potential endogeneity issues and considered as the primary estimation approach.
Findings: The empirical results indicate that ESG performance has a positive effect on firm operating performance, measured by return on assets (ROA). Moreover, firm size plays a positive moderating role, strengthening the impact of ESG on operating performance.
Originality/value: This study provides empirical evidence on the effect of ESG in the context of Japanese industrial firms and clarifies the moderating role of firm size in the relationship between ESG and operating performance. The findings offer a scientific basis and managerial implications for integrating ESG as a strategic management tool to enhance firms’ operating performance.