ESG Disclosure Quality, Company Characteristics and Financial Performance: The Role of External Assurance

Abstract

This study aims to examine the effect of environmental, social, and governance (ESG) disclosures, financial ratios, and external assurance on financial performance. Specifically, environmental disclosure, social disclosure, governance disclosure, quick ratio, debt-to-equity ratio, and external assurance are analyzed as determinants of financial performance. Using quantitative methods, this study employs secondary data obtained from companies listed on the stock exchange, with regression analysis applied to test the proposed hypotheses.

The results reveal that environmental, social, and governance disclosures have a positive and significant effect on financial performance, indicating that firms with higher transparency in sustainability practices tend to achieve better financial outcomes. External assurance is also found to significantly enhance financial performance, suggesting that credibility and reliability of sustainability reporting play an important role in influencing stakeholders’ trust and investment decisions. In contrast, the quick ratio and debt-to-equity ratio do not show a significant effect on financial performance, implying that traditional financial indicators may not be the primary drivers of firm performance in the context of sustainability-oriented business environments. These findings highlight the growing importance of ESG disclosure and assurance mechanisms in improving firm performance, while also suggesting a shift from conventional financial metrics toward more holistic and sustainability-driven evaluation approaches. This study contributes to the literature by providing empirical evidence on the strategic role of ESG practices and external assurance in enhancing financial performance.