The role of financial slack in moderating the effect of ESG on firm performance in sharia & non-sharia

Abstract

This study aims to examine the effect of ESG on company performance and the role of financial slack in moderating the relationship between ESG and company performance in 9 countries with the highest Islamic financial assets. A total sample of 686 companies was analyzed using panel data and processed with STATA as the analytical tool. The results show that ESG has a significant effect on company performance as measured by ROE. However, financial slack does not play a moderating role in the relationship between ESG and company performance. This study focuses only on companies in the 9 countries with the highest Islamic financial assets, considering that Islamic principles may serve as a foundation for ESG practices to improve company performance. Sharia compliance, measured using a dummy variable, is included as a control variable to observe its effect on company performance.