Asna Syakirah Sahabuddin^1* and Norliza Che-Yahya²

^1*,2Faculty of Business and Management, Universiti Teknologi MARA, Selangor Branch
Puncak Alam Campus, Selangor, Malaysia

ABSTRACT

This study examines the relationship between environmental, social, and governance (ESG) practices and corporate financial performance (CFP) among Malaysian financially distressed listed companies classified under PN17 and GN3. Unlike many ESG studies that focus on general listed companies, this study focuses on distressed companies, where governance quality, investor confidence, and recovery capacity are more critical. Using annual panel data from 2015 to 2024, ESG is measured using environmental, social, and governance pillar scores, as well as a composite ESG score. CFP is measured using return on assets (ROA) and return on investment (ROI), while company size, company age, revenue growth, debt, insider shareholdings, and board size are included as control variables. The findings show that governance performance is the most consistent ESG dimension associated with stronger financial outcomes among distressed companies. Environmental and social pillars do not show statistically significant relationships with ROA and ROI. The composite ESG score is also insignificant, suggesting that combining ESG dimensions into one overall score may hide important differences between ESG pillars. The significance of this study lies in showing that ESG does not operate as a single uniform construct among financially distressed companies. Instead, governance appears to be the most decision-relevant ESG dimension in the PN17 and GN3 context. These findings contribute to ESG and management accounting literature by showing how governance-related ESG information can support performance evaluation, risk monitoring, capital allocation, and recovery planning among distressed companies.

Keywords:
ESG, Corporate Financial Performance, PN17, GN3, Distressed Companies