Nexus between ESG disclosure and financial performance: evidence from Morocco

In the context of transition to non-financial reporting, the purpose of this study is to analyze the relationship between environmental, social, and governance disclosure (ESGD) and the financial performance of non-financial companies listed in Morocco.Based on Circular 03/2019 and prior studies, we developed a 64-item grid to measure the extent of ESGD in reports from 49 companies from 2019 to 2023. Two proxies were used to measure financial performance, namely Tobin’s Q (stock market performance) and ROA (accounting performance). The fixed-effects model proved the most appropriate for analyzing the results, with robust, firm-level error clustering to address autocorrelation and heteroscedasticity. Additionally, a dynamic estimation using the generalized moment method (GMM) was performed as a robustness test to address potential endogeneity issues and the dynamic nature of financial performance. The main results of the study show a negative association between the extent of ESGD and stock market performance, as measured by Tobin’s Q, and an absence of a significant relationship between the extent of ESGD and accounting performance, as measured by ROA. This study contributes to the literature by examining the association between ESGD and financial performance in an emerging country undergoing regulatory transition in terms of ESG reporting. It highlights the perception of ESGD as a cost (under agency and trade-off theories) rather than a benefit (under signal and stakeholder theories).