Global Business and Finance Review | 2026
Authors: Sritanee N.; Kongkaew T.; Saengpao C.
DOI: 10.17549/gbfr.2026.31.1.145
Journal: Global Business and Finance Review
Year: 2026
Publisher: People and Global Business Association
Document Type: Article
Open Access: All Open Access; Gold Open Access
Cited by: 0
Purpose: This study explores how ESG performance influences firm-specific risk, applying Modern Portfolio Theory (Markowitz, 1952) and Agency Theory (Jensen & Meckling, 1976). While ESG aids risk diversification, excessive investment may introduce agency costs if sustainability priorities override shareholder value. The research assesses whether ESG strengthens financial stability or creates inefficiencies that impact firm volatility. Design/methodology/approach: Using 328 firm-year observations from Thai-listed firms (2018-2022), this study employs IV regression to assess ESG's impact on firm-specific risk. ESG scores are sourced from Refinitiv, financial data from the SET, and unsystematic risk is estimated via GARCH models on Fama-French residuals. GAM captures nonlinear ESG effects, offering insights into threshold dynamics and diminishing returns. Findings: ESG performance reduces firm-specific risk, with high-volatility firms benefiting the most. ENV factors have the strongest impact, reinforcing their role in corporate sustainability. IV regression confirms ESG's influence, while GAM highlights nonlinear effects, showing that excessive investment may lead to diminishing returns and higher costs. Firms must balance ESG commitments to maximize financial stability efficiently. Research limitations/implications: This study does not account for sector-specific ESG variations, which may shape firms' risk benefits. Future research should examine sectoral ESG interactions for deeper insights. Investors should prioritize ESG in risk assessments, especially environmental factors. Policymakers should promote ESG adoption through incentives and global reporting standards to enhance transparency and investor confidence. Originality/value: By refining the risk estimation approach and addressing prior empirical concerns, this research contributes to the ESG-risk literature, offering practical insights for investors, firms, and policymakers in emerging markets. ESG can be a vital tool for managing financial risk in economies with weaker regulatory protections. ⓒThe Author(s).
ESG Score; Financial Stability; Nonlinear Effects; Sustainability; unsystematic risk