The impact of ESG disclosure on firm performance and cost of capital in Saudi Arabian listed firms: The moderation impact of Vision 2030

Abstract

This thesis investigates the impact of environmental, social, and governance (ESG) disclosure on firm performance and the cost of capital in Saudi Arabian listed firms, while also examining the moderating role of Saudi Vision 2030. As sustainability continues to gain global importance, Saudi Arabia has implemented significant economic reforms to diversify its economy and align corporate governance and financial markets with international best practices. Against this backdrop, the thesis utilises a panel dataset of publicly listed firms extracted from the Bloomberg database and applies multiple regression models with fixed effects to assess the influence of ESG disclosure on financial performance, measured by return on assets (ROA) and return on equity (ROE), as well as market valuation, proxied by Tobin’s Q (TQ). Additionally, the thesis explores the relationship between ESG disclosure and the cost of capital, represented by the weighted average cost of capital (WACC). The findings reveal that the implementation of Vision 2030 has significantly increased firms’ ESG disclosure levels. However, ESG disclosure exhibits a negative relationship with firm performance when measured through TQ, while contributing to a reduction in the cost of capital. Moreover, the introduction of Vision 2030 as a moderating factor strengthens this negative relationship with TQ. The results further indicate that firms with ESG disclosure levels below the average experience a negative impact on ROA and ROE. When examining individual ESG dimensions, the thesis finds that governance and social disclosures reduce the cost of capital. However, Vision 2030 negatively moderates the relationship between social disclosure and the cost of capital, assisting firms in accessing capital at a low cost. This thesis contributes to the existing literature by providing empirical evidence from an emerging market perspective, offering valuable insights for policymakers, investors, and corporate decision makers regarding the financial implications of ESG disclosure. Furthermore, it underscores the role of national economic visions in shaping corporate transparency and sustainability practices. The thesis has significant implications for Saudi firms, regulators, and international investors, as it highlights the strategic importance of ESG disclosure in enhancing firm performance and reducing financing costs. Additionally, it lays the groundwork for future research on the intersection of sustainability reporting, economic reforms, and financial performance in developing markets.