Distinctive impacts of ESG pillars on corporate financial performance: A random forest analysis of Korean listed firms

Yangsoo Jin

Finance Research Letters, 2025, vol. 71, issue C

Abstract: This study investigates the distinct effects of the environmental, social, and governance (ESG) pillars on corporate financial performance (CFP) measured by ROE and ROA. Using a random forest regression on a sample of Korean-listed firms, we address the positive correlations among these pillars and explore the nonlinear relationships between CFP and individual pillars without pre-specified functional forms. The findings indicate that both environmental and governance performances positively affect CFP, with environmental performance having a more substantial impact but diminishing returns at higher levels. Social performance negatively affects CFP. The environmental pillar emerges as the most reliable predictor of CFP.

Keywords: ESG pillars; Corporate financial performance; Diminishing returns; Random forest regression (search for similar items in EconPapers)
JEL-codes: G11 G17 G30 M14 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:71:y:2025:i:c:s1544612324014247

DOI: 10.1016/j.frl.2024.106395

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