To whom always assisted, guided and supported me to compete my research project throughout the long journey, I would like to express my utmost appreciation to thank you all. The first people I would like to express my deepest gratitude is my supervisor, Mr Raymond Ling Leh Bin, for always guiding me in the right direction by providing his professional suggestions and consultations during the preparation of this research project.
LIST OF TABLES
LIST OF ABBREVIATIONS
ABSTRACT
INTRODUCTION
- Background of study
- Current Situation of Study
- Problem statements
- Inconsistency of ESG data
- The gap between expectation and reality
- Research Objectives
- Research questions
- Significant of the study
- Conclusion
Many researches showed that the result of ESG reporting or ESG investing is significant and positive. The author also pointed out that it is a big challenge for investors to understand ESG measurement because different rating agencies have different indicators.
LITERATURE REVIEW 2.0 Introduction
Theoretical review
- Agency theory
- Stakeholder theory
Therefore, ESG is treated as part of corporate governance and stakeholder theory is discussed below. Zhang, Loh and Wu (2020) pointed out that stakeholder theory emphasized the role of stakeholders in the value creation process and stakeholders can be a source of support towards corporate success if the firm is able to manage relationships in effective way.
Empirical review
- ESG concept
- Corporate governance in Malaysia
- Relationship between corporate governance, ESG, value creation and organization performance as investment decision
The president of the management board cannot be a member of the audit committee, the appointment committee or the remuneration committee. One of the main objectives of shareholder value measurement is to measure the value impact of past and present financial performance along with future investment strategies and planning (Johnson, 2001). Meanwhile, the study declared that companies did not create value directly, but affected shareholder value through factors, and that corporate governance is one of the factors that play a key role in responding to agency problems by setting limits on the appropriate rules and regulations for the board of directors. in order to have better transparency in the decision-making system (Venugopal et al, 2019).
Not only that, the company's financial performance, ethical concerns of the organization, customer demand are also part of the consideration. Thus, CG plays an important role in the growth of the company's performance, where it avoids financial crisis and helps in sustainable development. A broad definition of corporate governance has shown that the purpose of corporate governance among listed companies is to create value, but shareholder-owned companies are committed to sharing the created value, as it consists of activities related to the distribution of rights and responsibilities, the exercise of power and organizing multiple functions of the firm (Page, 2005).
Independent variables
- Environment
- Social
- Governance
G” stands for a set of rules, policies and practices related to company governance (Ting et al., 2019). The corporate governance (CG) system is a key component in enhancing business performance in the best interest of shareholders, investors, firms and other stakeholders (Tarmuji et al., 2016). CG is a method and structure such as board composition, whistleblower schemes, executive compensation, bribery and corruption that is used to manage the organization towards better management for sustainable development and to set ultimate goals along with the long-term value of shareholders and also the interests of others. interested parties.
2016) suggested that companies should follow CG frameworks and principles to ensure sustainability and growth, as best practice can attract and retain executives and board members.
Dependent variable
- Market Value Added (MVA)
Additionally, market value added is used to assess shareholder value creation in capturing the organization's ability and efficiency in managing and allocating scarce resources in order to maximize shareholder value (Hillman. & Keim, 2001). . MVA is calculated from the differences between the market value of the firms and the invested capital, therefore when the added value of the market is greater than zero it represents the cost of capital that had covered the return of the invested capital (Berzakova, Bartosova & Kicova, 2015). Other studies also described the same as the added value of the market could make the most of the wealth of the shareholders by maximizing the differences between the sum of the shareholders' equity and the market value of the firm's shares (Petravičius & . Tamošiūnien, 2008 ).
In fact, MVA represents the actual value of EVA, which EVA focuses more on the details of the firm. MVA can make the most of shareholder wealth by maximizing the differences between the amount of shareholders' equity and the market value of the firm's stock. MVA represents the present value of EVA and more advanced in determining as top management, which has better descriptive power in the valuation of the corporation as a whole.
RESEARCH METHODOLOGY
Introduction
Conceptual framework
Research framework
Hypothesis Development
Research design
Additionally, “Correlational Research: Definition with Examples” (2021) stated that correlational research characteristics are non-experimental, retrospective and dynamic. This means that researchers do not have to agree or disagree with the hypothesis, but to measure and observe the relationship between variables without changing them or subjecting them to external conditioning; it only looks back and observes the past for the historical data; they may have negative correlations in the past, but they may be positive in the future as the patterns are always changing ("Correlation Research: Definition with Examples", 2021). The purpose of this study is to investigate the impact of ESG factors' effect on shareholders' value and among publicly listed companies in Malaysia.
The data collected would be the quantitative data accumulated from the annual reports of good disclosure of shortlisted public listed companies and the collection was also carried out using the Bursa Malaysia websites, Investors Relation and Bloomberg. The period chosen for the data collected for this research was from the year 2012 to 2020. The reason for not getting earlier than 2012 and latest 2021 was due to insufficient data from Bloomberg where some companies only report their ESG report score to 2020.
Data collection method
- Secondary data
- Bloomberg
- Annual report
Next, to calculate shareholder value, data is collected from each company's annual report. In this study, part of the secondary data is collected from Bloomberg platform which provides financial real-time data and records for many years. According to Roush (2021), Micheal Bloomberg founded Bloomberg in the year of 1981 as financial data, analytics and news providers through innovative technology via Bloomberg terminal.
The data required from the annual report are the main ones for calculating the value of MVA, such as share price, number of shares, market capitalization and total equity. The share price and market capitalization data can be found in the financial performance summary section or in the chairman's memo, and the data is taken as of the financial year end date. In addition, the number of shares could be found in the shareholder analysis, where a table showed how many shares were owned by the shareholders.
Sampling design
- Target population
- Sampling element
- Sampling techniques
- Sample size
However, because companies don't have many ESG reports, so only filter all publicly listed companies to get the one that has an ESG score. Those companies that were selected in this research were from various sectors such as manufacturing, plantation, property, communication, finance, oil and gas, logistics and others to perform in this study. Definition” (2022) mentioned that sample size is used in market research to determine the number of subjects in a selected sample.
A sample size of 90 listed companies from Bursa Malaysia listed under the Main Market, Ace Market and LEAP Market for a period of 9 years from 2012-2020, resulting in 810 observations. The reason for choosing listed companies is because of ESG reporting, which strongly encourages them to publish in addition to the annual report due to increasing the transparency of the company's management to the shareholders.
Research instrument
Reliability and validity
The numbers of ESG score and each ESG factor are taken from the Bloomberg platform which is reliable and reliable enough as it has developed for many years and famous for collecting financial data from various companies around the world.
Construct measurement
- Origin of construct
Governance factors Size of board Interval scale Independent directors Interval scale Board Duration (Years) Interval scale Number of board meetings Interval scale.
Data analysis
- Factor Analysis
- Confirmatory factor analysis (CFA)
3 Types of Factor Analysis” (2022) explained that factor analysis is often used as a tool to deal with huge amounts of data when analyzing the relationship between two observable variables and to evaluate how it is affected by another smaller set unobservable variables. Exploratory factor analysis (EFA), confirmatory factor analysis (CFA) and structural equation modeling are the 3 types of factor analysis. Confirmatory Factor Analysis” (2021) stated that this was used as a tool to reject or confirm the measurement theory when assessing the validity of the measurement model.
The reason for doing this is to check the correlation and effects of an existing set of predicted factors and variables that influence each other (“3 Types of Factor Analysis”, 2022). Nunkoo and Ramkissoon (2012) found that CFA is also referred to as a measurement model because it also has the same function in shaping the items that make up the measurement of an underlying latent variable. Structural modeling was defined as combined path models and measurements prescribing the relationship between observed variables and latent variables (Nunkoo & Ramkissoon, 2012).
Conclusion
Previously, the relationship between latent variables was examined and hypothesis tests performed regarding the causal relationships between endogenous and exogenous variables specified in the path diagram. Benitez, Henseler, Castillo and Schuberth (2020) suggested that the researcher should examine path coefficient, significance of variables, overall fit of the estimated model, coefficient of determination (𝑅2) and effect size (𝑓2) while evaluating the structural fashion model.
RESEARCH RESULT
- Introduction
- Response rate
- Descriptive analysis
- Factor analysis
- Factor loading
- Convergent validity
- Internal consistency reliability
- Discriminant validity
- Structural model assessment
- Collinearity assessment
- Determination of coefficient assessment
- Determination of predict accuracy, Q²
Hair, Risher, Sarstedt and Ringle (2019) emphasized that the factor loading of a latent variable should not be lower than 0.708 and that a figure close to 0.7 is acceptable, e.g. 0.69. The lowest loading was the drop on GDS5 with a negative 0.446, which is lower than 0.708, and this item should be dropped. CR should be higher than 0.7, with management factors having a value of 0.883 and others listed as 1 from Table 4.5.
There is another metric to measure internal consistency reliability - Cronbach's alpha, but produces lower values than composite reliability (Hair et al., 2019). R-squared means the number of predictor constructs, so the higher the R-squared, the greater the number of predictor constructs (Hair et al., 2019). At the same time, value greater than 0 illustrates little predictive accuracy; value greater than 0.25 illustrates medium predictive accuracy; and value greater than 0.50 illustrates high predictive accuracy of the PLS path condition (Hair et al., 2019).
DISCUSSION AND CONCLUSION
- Introduction
- Discussion on findings
- Descriptive analysis
- Finings on hypothesis
- Implications on the Study
- Limitation of research
- Recommendations for future research
- Conclusion
Retrieved from https://www.proquest.com/scholarly-journals/contribution-eva-leverage-total-effect-on-company/docview se-2. Retrieved October 6, 2021, from https://www.wealthify.com/blog/what-is-esg-and-why-does-it-matter-to-investors. Retrieved February 27, 2022, from https://www.statisticssolutions.com/free-sources/directory-of-statistical-analyses/confirmatory-factor-analysis/.
Retrieved October 12, 2021, from https://www.complianceweek.com/the-gap-between-esg-practice-and-perception/4486.article. Retrieved November 17, 2021, from https://www.theedgemarkets.com/article/bursama-malaysia-aims-bring-public-listed-companies-esg-journey. Retrieved February 29, 2022, https://www.statisticssolutions.com/free-resources/directory-of-statistical-analyses/structural-equation-modeling/.
