Herding Behavior, ESG Disclosure, and Financial Performance: Rethinking Sustainability Reporting to Address Climate-Related Risks in ASEAN Firms

Ari Warokka (), Jong Kyun Woo and Aina Zatil Aqmar
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Ari Warokka: Global Business Department, Busan International College, Tongmyong University, Busan 48520, Republic of Korea
Jong Kyun Woo: Global Business Department, Busan International College, Tongmyong University, Busan 48520, Republic of Korea
Aina Zatil Aqmar: Prosemora Consulting, Central Jakarta 10440, Indonesia

JRFM, 2025, vol. 18, issue 8, 1-24

Abstract: This study examines the intersection of environmental, social, and governance (ESG) disclosure (operationalized through sustainability reporting), corporate financial performance, and the behavioral dynamics of herding in capital structure decisions among non-financial firms in five ASEAN countries. As ESG and sustainability finance gain prominence in addressing climate change and climate risk, understanding the behavioral factors that relate to ESG adoption is crucial. Employing a quantitative approach, this research utilizes a purposive sample of 125 non-financial firms from Indonesia, Malaysia, the Philippines, Singapore, and Thailand, gathered from the Bloomberg Terminal spanning 2018–2023. Managerial Herding Ratio (MHR) is used to assess herding behavior, while Sustainability Report Disclosure Index (SRDI) measures ESG disclosure. Partial Least Squares Structural Equation Modeling (PLS-SEM) and Multigroup Analysis (MGA) were applied for data analysis. This research finds that while sustainability reporting enhances return on assets (ROA) and Tobin’s Q, it does not significantly relate to net profit margin (NPM). The findings also confirm that herding behavior—where companies mimic the financial structures of peers—moderates the relationship between sustainability reporting and performance outcomes, with leader firms gaining more from transparency efforts. This highlights the double-edged nature of herding: while it can accelerate ESG adoption, it may dilute the strategic depth of climate action if firms merely follow rather than lead. The study provides actionable insights for regulators and corporate strategists seeking to strengthen ESG finance as a driver for climate resilience and long-term stakeholder value.

Keywords: ESG disclosure; financial performance; herding behavior; ASEAN (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2025
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