Do Board Mechanisms Moderate the Effect of ESG Disclosure and Competitive Advantage on Corporate Performance? Evidence from Selected ASEAN Markets

In an increasingly competitive and sustainability-oriented global economy, corporate performance has become a critical benchmark for assessing a company's competitiveness, efficiency, and sustainability. Strong corporate performance reflects the effectiveness of business strategies in generating economic value, strengthening market positions, and attracting investor confidence. However, various regional reports indicated that many companies in the selected ASEAN region, particularly in Indonesia, Malaysia, and Singapore, still faced performance gaps due to low operational efficiency, fluctuating market values, and weak post-pandemic adaptation [1]. This phenomenon underscores the need for managerial strategies capable of sustainably enhancing productivity and corporate value.

In an effort to improve efficiency, many businesses have adopted the ESG framework, which stands for Environmental, Social, and Governance (ESG). Firms must embrace ESG practices to strengthen their market position, reduce operational risks, and attract sustainable investment opportunities [2, 3]. Firms that proactively implement ESG principles tend to exhibit superior market value and profitability, driven by resource efficiency and governance transparency [4, 5]. However, empirical evidence within the ASEAN region remained inconclusive; while some studies confirmed a positive relationship between ESG and corporate performance [6], others identified a weak effect attributed to disparate regulatory frameworks and divergent corporate cultures [7]. This inconsistency indicates a critical research gap that necessitates further investigation across countries with diverse institutional characteristics.

Conversely, competitive advantage remains a critical determinant of a firm’s ability to achieve superior performance. It enables companies to generate added value through innovation, supply chain optimization, and differentiation strategies that strengthen their market position. In this study, the outcome of such advantages, corporate performance, is operationalized using the Return on Assets (ROA) metric [8]. Despite its importance, empirical studies in the ASEAN region continued to report inconsistent effects of competitive advantage on corporate performance, often attributed to external contingencies such as policy uncertainty and market volatility [9]. Consequently, this study focuses on analyzing the impact of competitive advantage on corporate performance, aiming to bridge the existing gap regarding the effectiveness of competitive strategies within regional markets.

ESG initiatives and competitive advantage are not mutually exclusive; rather, they serve as complementary pillars of a resilient and sustainable corporate strategy. Robust ESG implementation can strengthen corporate reputation and market trust, which subsequently enhances the effectiveness of promotional strategies and reinforces a firm’s competitive position. Conversely, organizations possessing a strong competitive advantage are better positioned to strategically integrate sustainability principles into their core business models, thereby creating a synergistic effect [10].

PT Unilever Indonesia Tbk. serves as an example of the successful integration of ESG initiatives and competitive strategies within the ASEAN region. During the 2020–2023 period, Unilever experienced significant performance pressure stemming from the COVID-19 pandemic, which resulted in a sales decline of approximately 6%. However, the firm managed to achieve a performance recovery by intensifying its ESG implementation and pioneering environmentally friendly product innovation strategies [11]. Unilever's Sustainable Living Plan (USLP) program not only reduced carbon emissions by 50% but also strengthened consumer loyalty through recycled-based product lines, resulting in an increase in the company's ROA from 12% to 15% in 2023.

The phenomenon observed at PT Unilever mirrors a broader trend prevailing in the ASEAN region, where firms with deficient ESG governance and weak board mechanisms frequently experience performance stagnation and share price declines of up to 10%, often due to social issues such as labor disputes within supply chains [11]. Conversely, companies with streamlined boards and high levels of gender diversity demonstrated a superior capacity to mitigate the adverse impacts of the pandemic, as exemplified by Unilever Indonesia. This provides clear evidence that competitive advantage, supported by ESG implementation and strengthened by effective board governance, is not merely a theoretical concept but a practical strategy for building long-term corporate resilience and performance [11].

This research is of paramount importance as it emphasizes the role of ESG and competitive advantage as key drivers of corporate performance in the increasingly competitive and dynamic ASEAN landscape. To remain relevant and competitive in the market, firms must incorporate ESG into their core strategies in response to increasingly stringent ESG regulations and rising stakeholder expectations for sustainable business practices [12]. However, ESG implementation alone is insufficient without a robust competitive advantage to optimize resources and respond effectively to market dynamics [13]. Theoretically, this research extends the existing literature by examining the role of board mechanisms in strengthening the nexus between ESG, competitive advantage, and corporate performance. Practically, it offers strategic solutions for management in Indonesia, Malaysia, and Singapore [11], providing actionable recommendations for ASEAN firms to optimize board structures and ESG integration in achieving long-term sustainability and global competitiveness [14].

The uniqueness of this study lies in its multi-country comparative framework across ASEAN countries and the strategic integration of two moderating variables, namely gender diversity and board size, which have seldom been examined simultaneously in the existing literature [15]. Whether ESG and competitive advantage can be synergized with good governance to enhance corporate performance sustainably is the focus of this study's contextual and comprehensive assessment, in contrast to prior research that often focused on a specific country or variable [16, 17]. The use of samples from three ASEAN countries with distinct institutional and regulatory characteristics yields richer and more practically relevant findings for the development of business policies and strategies at the regional level [7, 11].

This research uses secondary data and adopts a quantitative approach. The population of the study consists of companies listed on the Indonesia Stock Exchange (IDX), Bursa Malaysia (KLSE), and the Singapore Exchange (SGX). The observation period covers 2020 to 2023, focusing on companies operating in the manufacturing sector.

The manufacturing sector was selected due to its pivotal role in the ASEAN economy and its high exposure to ESG issues. Furthermore, this sector provides a robust context for examining how competitive advantage influences corporate performance in the post-COVID-19 era, a period marked by significant changes in regional governance regulations. The 2020–2023 timeframe was chosen to capture recent dynamics, as ESG data and board mechanisms have become more readily available and relevant for observing their impact on corporate performance [46, 47]. This population also ensures the availability of comprehensive secondary data from integrated databases such as Refinitiv, thus supporting the generalizability of the findings to the ASEAN context.

Table 1 describes the purposive sampling method of 112 companies across three countries with a four-year observation window (2020–2023), resulting in a total of 448 observations.

Table 1. Sample criteria

3.1 Variable measurement

Multiple types of variables, including dependent, independent, moderating, and control variables, are used in this research. Each variable's measurement scale is detailed in the following subsections, and the appendix contains a summary of the data used in this research.

The research in this area uses Tobin's Q, the ratio of a company's market value to its book value of assets, to evaluate corporate performance. Accounting performance and future development potential are two aspects that this indicator captures, making it a popular tool in management and finance research [48].

A Tobin's Q value of less than 1 (Q < 1) indicates that the company is undervalued because its book value exceeds its market value, thus attracting investor interest in purchasing its shares [48]. Conversely, if Tobin's Q is greater than 1 (Q > 1), the company is considered overvalued, which can motivate others to imitate its business model to achieve similar profit opportunities.

When evaluating a company's success in relation to its competitors and its long-term viability, Tobin's Q is a useful metric because it takes into account both the company's past financial performance and the market's expectations for its future.

Tobin's Q is measured using the following formula:

Tobins's $Q=\frac{\text { market value equity }+ \text { market liabilities }}{\text { Total Assets (Book Value) }}$

3.1.1 Environmental, Social, and Governance

The ESG framework evaluates businesses based on their impact on society, their ability to preserve natural resources, and the quality of their internal management [26]. From an environmental perspective, the assessment focuses on how a company manages the impact of its activities on natural resources, including emissions control and energy efficiency.

A company's ESG score provides a numerical representation of its performance in these domains. The ESG variables were combined into a single total score for this study. Several metrics related to sustainable practices and good corporate governance are used to evaluate each component. Higher scores indicate better sustainability and governance performance, and ESG scores are typically presented on a scale of 1 to 100 [28].

Measuring ESG scores is crucial for providing a holistic picture of how a company manages risks and opportunities related to sustainability issues, thus serving as a useful evaluation tool for investors and other stakeholders [42]. The general ESG score measurement formula can be written as follows:

ESG Score = ESG score data provided by the revinitiv database

3.1.2 Competitive advantage

Competitive advantage reflects a company's ability to create strategies that differentiate its position from competitors and provide sustainable added value to consumers [27]. This strategy enables a company to build a strong brand identity, which is used as a tool to face business competition in a particular industry.

Competitive advantage is proxied by ROA, reflecting the firm’s capability to utilize assets efficiently in generating operational returns. In this study, ROA is interpreted as an indicator of internal strategic efficiency rather than a direct measure of market-based corporate performance.

Conceptually, there are several ways to measure competitive advantage, including capital requirements, economies of scale, and premium pricing capability (PPC). However, ROA is considered the most relevant metric for characterizing competitive advantage in the context of manufacturing companies in ASEAN countries, particularly Indonesia, Malaysia, and Singapore. Based on total assets under management, ROA indicates how well a business generates profits [49]. ROA is a key indicator of a business's competitive advantage because it allows a quantitative assessment of a company's capacity to utilize its assets to generate profits [50]. ROA is an important metric for competitive advantage as it shows how well a firm is performing in a competitive industrial environment, where profitability is a constant challenge. The ROA operational formula used in this research is:

$R O A=\frac{\text { Net Income }}{\text { Average Operating Assets }}$

3.1.3 Gender diversity

Gender diversity in the board of commissioners’ structure is the moderating variable used in this article, and its impact on the relationship between the independent and dependent variables will be examined. Board diversity can take various forms, including gender, experience, and cultural background. Because each member offers a different perspective that can improve the company's oversight and decision-making processes, this diversity adds value [28].

Using the following formula, the gender diversity moderating variable is determined as the proportion of female board members in a given company:

$$\begin{aligned} \text{Gender diversity} =\frac{\text {Number of Female Board}}{\text {Total Number of Board Member}} \times 100\end{aligned}$$

3.1.4 Board size

State that the size of the board of commissioners can influence how well a company is monitored and how decisions are made, potentially moderating the relationship between factors that influence organizational performance [29].

The size of the board of commissioners is measured based on the total number of board commissioners.

Board Size = Number of Board commissioners

3.1.5 Control variables

The research used leverage, business size, firm age, inflation, and ΔGDP as control variables.

1. Leverage

A company's level of dependence on debt as a source of funding is reflected in its leverage [51]. A company's financial risk, particularly the risk of difficulty servicing debt, increases with the amount of debt. The Debt-to-Equity Ratio (DER) can be used to calculate leverage as follows:

$D E R=\frac{\text { Total Liabilities }}{\text { Total Assets }}$

2. Firm size

In this study, firm size is measured by the total value of a company’s assets expressed in a specific currency. Total assets represent the overall economic resources owned and controlled by the company, including current and non-current assets used to support business operations. A higher total asset value generally indicates a larger scale of operations and greater capital investment within the firm. These resources can be utilized to optimize operational activities, expand business capacity, improve efficiency, and support strategic growth initiatives. Therefore, firm size, as reflected by total assets, is often associated with a greater ability to generate revenue, enhance competitiveness, and increase overall firm value [52]. Therefore, total assets are an appropriate metric.

$Firm\, size= {In}\,(Total \,Assets)$

3. Firm age

Firm age is a measure of how long a company has been operating since its founding. Company age is often used in business and financial writing to describe a company's level of experience and stability in facing market dynamics [49].

The number of years that have passed since the year of observation is subtracted from the year the business was created to get the firm's age. The method for determining the age of a company is:

Age = Year of study - year of company founding

4. Gross Domestic Product Growth (ΔGDP)

The total value of finished goods and services produced by all economic actors in a country during a specific time period, usually a year or a quarter, is expressed by gross domestic product (GDP). GDP growth is measured by the percentage change in a country's GDP between periods [53].

To address differences in economic scale between countries, GDP growth is measured using the formula below [53].

$\Delta G D P t=\frac{G D P t-G D P t-1}{1}$

5. Inflation

The percentage change in the consumer price index from the previous period, expressed as a percentage per year, is used in this study to assess inflation [54].

$\operatorname{In} f=\frac{C P I-C P 1_{t-1}}{C P I_{t-1}}$

3.2 Data analysis method

The data analysis method used in this study is multiple regression using panel data. This method first involves testing the model using the Hausman and Chow tests, then determining whether to use fixed effects, common effects, or random effects.

This study uses moderating variables, resulting in two empirical equations.

Empirical Eq. (1) (Direct Effect Model) is as follows:

$\begin{align}  & C{{P}_{i,t}}=\alpha +{{\beta }_{1}}ES{{G}_{i,t}}+\ {{\beta }_{2}}C{{A}_{i,t}}+\ {{\beta }_{3}}G{{D}_{i,t}}+ \\ & \ {{\beta }_{4}}BSIZ{{E}_{i,t}}+\ {{\beta }_{5}}LE{{V}_{i,t}}+\ {{\beta }_{6}}SIZ{{E}_{i,t}}+\  \\ & {{\beta }_{7}}AG{{E}_{i,t}}+\ {{\beta }_{8}}\Delta \text{GD}{{\text{P}}_{i,t}}+\ {{\beta }_{9}}IN{{F}_{i,t}}+\ {{ε}_{i,t}} \\\end{align}$                     (1)

Empirical Eq. (2): Moderation (Interaction) Model - to determine the interaction of the moderating variable with the independent variable used in this study.

$\begin{align}  & C{{P}_{i,t}}=\alpha +{{\beta }_{1}}ES{{G}_{i,t}}+\ {{\beta }_{2}}C{{A}_{i,t}}+\ {{\beta }_{3}}G{{D}_{i,t}}+\ {{\beta }_{4}}BSIZ{{E}_{i,t}} \\ & +\ {{\beta }_{5}}ES{{G}^{*}}G{{D}_{i,t}}+\ {{\beta }_{6}}C{{A}^{*}}G{{D}_{i,t}}+\ {{\beta }_{7}}ES{{G}^{*}}BSIZ{{E}_{i,t}}+ \\ & \ {{\beta }_{8}}C{{A}^{*}}BSIZ{{E}_{i,t}}+\ {{\beta }_{9}}LE{{V}_{i,t}}+\ {{\beta }_{10}}SIZ{{E}_{i,t}}+\ {{\beta }_{11}}AG{{E}_{i,t}} \\ & +{{\beta }_{12}}\Delta \text{GD}{{\text{P}}_{i,t}}+\ {{\beta }_{13}}IN{{F}_{i,t}}+\ {{ε}_{i,t}} \\\end{align}$                      (2)

where,

CP = Corporate Performance;

α = Constant;

β1-12 = Regression Coefficient;

ESG = Environmental, Social, and Governance;

CA = Competitive Advantage;

GD = Gender Diversity;

BSIZE = Board Size;

Lev = Leverage;

Size = Company Size;

Age = Company Age;

ΔGDP = Gross Domestic Product Growth;

INF = Inflation;

ε_i,t = Error term = company i in year t.

5.1 Discussion

The t-test provides statistical support for the idea that ESG factors significantly and favorably affect corporate performance. The results suggest that when ESG norms are prioritized, organizational performance also improves [30]. The RBV provides an explanation for this finding by arguing that ESG is a valuable and hard-to-replicate strategic asset [22]. Furthermore, ESG also supports sustainable competitive advantage through effective resource management [22]. From a Stakeholder Theory perspective, ESG reflects a company's responsibility to its stakeholders [18]. The implementation of ESG can increase stakeholder legitimacy and trust in the company [55]. Strong stakeholder support contributes to stability and improved corporate performance [56].

This research aligns with findings showing that ESG is positively correlated with a company's profitability and market value [25]. ESG commitment is also associated with better financial performance and higher returns [30]. Furthermore, companies with high ESG scores tend to experience more stable market value growth [31]. However, some studies have reported non-significant relationships in specific market contexts, where similar results also indicated an insignificant relationship between ESG and performance.

Overall, this research confirms that ESG plays a crucial role in creating added value and improving company performance by strengthening internal efficiency and external stakeholder relationships [18, 57].

The t-test results indicate that competitive advantage has a positive and statistically significant effect on corporate performance, thereby supporting the proposed hypothesis. These findings suggest that companies with stronger competitive advantages tend to achieve higher market valuations, as reflected in an increase in Tobin’s Q. This implies that firms possessing superior resources, innovation capabilities, operational efficiency, or strategic differentiation are better positioned to create value and strengthen investor confidence. Consequently, competitive advantage plays an important role in enhancing overall corporate performance and sustaining long-term growth [31]. That valuable and hard-to-imitate internal resources are the basis of competitive advantage is a central tenet of the RBV Theory, which this discovery lends credence to [22].

Strong competitive advantages, such as innovation and operational efficiency, can increase profitability and company value [30]. Competitive advantage-based strategies also help companies maintain greater stability in the face of market pressures [31]. However, research suggests that the effect of competitive advantage is not always significant, particularly in highly volatile sectors [42]. These differences in results are influenced by industry characteristics and varying economic conditions.

Having a competitive edge is essential for a company's success and value, according to this study. This is especially true in business settings that are reasonably stable.

Findings from the t-test disprove the claim that gender diversity reduces the effect of ESG on business performance. This shows that gender diversity on boards of directors does not improve the association between ESG and business value, according to Tobin's Q. This finding contradicts Agency Theory, which suggests that a more diverse board would improve oversight and management [21].

Contrary to previous findings, our data show that having more female board members does not influence a company's bottom line [32]. Similar findings also indicate that gender diversity can improve a company's reputation and profitability [58]. These differences in results are likely influenced by different country contexts and organizational structures. In some Asian companies, female representation is still limited to non-executive positions, resulting in a relatively small impact on strategic decisions [34].

Countries with inclusive governance cultures and sophisticated sustainability rules have a more substantial moderating influence of gender diversity, according to this study's findings. Thus, gender diversity is ineffective as a moderating variable in this research, as it is still just symbolic and does not make a real contribution to corporate decision-making.

The results of the second hypothesis test lead us to believe that gender diversity amplifies the positive effect of competitive advantage on business success. As seen in Tobin's Q, this study suggests that gender diversity on boards of directors may enhance a company's ability to convert its competitive edge into greater market value. In theory, these results support the RBV, which argues that a diverse workforce is better able to provide novel ideas and sustainable advantages [22].

Previous research has shown that gender diversity can strengthen the relationship between competitive strategy and performance by increasing innovation [34]. Gender diversity has also been reported to increase the effectiveness of decision-making and a company's strategic flexibility [35]. However, there is research that finds that gender diversity does not always have a positive impact on performance due to potential coordination conflicts within the board [59].

These differences in results may be influenced by cultural contexts and industry characteristics. Overall, these findings confirm that gender diversity acts as a reinforcing factor, increasing the effectiveness of competitive advantage in driving company performance.

The results of the t-test support the hypothesis and demonstrate that ESG has a higher effect on business performance with a larger board. Consequently, bigger boards provide more support for the relationship between ESG practices and corporate performance, as measured by Tobin's Q. The findings are consistent with Agency Theory, which emphasizes the critical role of the board's monitoring in minimizing agency conflicts [21]. Stakeholder Theory, which states that a board with more members may better reflect the interests of a wider variety of stakeholders, is also supported by the results [18].

Previous research has shown that larger board size can strengthen ESG implementation by increasing oversight capacity and diversity of expertise [37]. Similar results have also been found in the context of corporate governance, where board size supports the effectiveness of sustainability implementation [38]. However, findings suggest that excessively large boards can reduce decision-making effectiveness due to coordination constraints [39]. This difference may be influenced by company characteristics and governance conditions in each country [16].

The results of this study confirm that board size serves as a significant moderator, strengthening the positive relationship between ESG and company performance (H5), with effectiveness remaining dependent on the quality of coordination and internal board efficiency.

Furthermore, Board Size has been shown to weaken the positive effect of competitive advantage on corporate performance, thus supporting the hypothesis. This suggests that larger boards may reduce the effectiveness of firms in transforming competitive advantage into higher market performance, as reflected in Tobin’s Q. From the perspective of the RBV, although competitive advantage represents a valuable strategic resource, excessive board size may create coordination difficulties, slower decision-making processes, and communication inefficiencies that hinder the firm’s ability to respond strategically to market opportunities. Consequently, the strategic benefits derived from efficient asset utilization and internal capabilities become less effectively translated into superior market valuation [22].

Previous research has shown that balanced board size can enhance a company's coordination and strategic capabilities. Similar findings also indicate that appropriate board size helps companies leverage competitive advantages more effectively [8]. However, some research has found that large boards can decrease efficiency and performance due to increased coordination problems [43]. This difference may be influenced by different governance characteristics and organizational circumstances.

Overall, the results of this study confirm that an optimal board size can significantly strengthen the relationship between competitive advantage and company performance, especially when supported by an effective and well-coordinated board structure.

5.2 Implications

5.2.1 Practical implications

Practically, the empirical findings of this study offer several strategic recommendations for corporate management, regulators, and investors:

1) For investors and stakeholders in the ASEAN region, this study confirms that companies with strong ESG performance, strong competitive advantages, and effective board mechanisms have more stable and sustainable financial prospects. Therefore, responsible investment decisions need to consider ESG scores, competitive advantage strategies, and the effectiveness of board mechanisms in ensuring transparent and accountable governance. With comprehensive ESG-based implementation and assessment, both companies and investors can jointly promote the creation of a competitive, sustainable, and long-term value-driven ASEAN business ecosystem.

2) For internal management, strengthening competitive advantage can be achieved through continuous innovation, developing environmentally friendly products, and improving operational efficiency. Companies need to ensure that their competitive strategies focus not only on profit but also on creating value for all stakeholders, thereby supporting business sustainability amidst the pressures of globalization and the green transition.

3) For corporate governance structures, research shows that gender diversity and proportional board size can strengthen oversight effectiveness and the quality of strategic decisions. Therefore, companies are advised to expand female representation on boards of directors and optimize the number of board members to ensure neither too large nor too small, to maintain a balance between coordination and effectiveness.

4) For policymakers and capital market regulators, this research underscores the necessity for more stringent and standardized ESG disclosure mandates across the IDX, KLSE, and SGX. Regulators should encourage increased participation of women in the board of directors as part of efforts to strengthen sustainable corporate governance.

5.2.2 Theoretical implications

The results of the t-test support the hypothesis and demonstrate that ESG has a higher effect on business performance with a larger board. Consequently, bigger boards provide more support for the relationship between ESG practices and corporate value, as measured by Tobin's Q. The findings are consistent with Agency Theory, which emphasizes the critical role of the board's monitoring in minimizing agency conflicts [21]. Stakeholder Theory, which states that a board with more members may better reflect the interests of a wider variety of stakeholders, is also supported by the results [22]. The findings of this study support the view that a well-balanced set of ESG practices can enhance a firm’s productivity, credibility, and market valuation. Effective ESG performance may strengthen stakeholder confidence, improve operational efficiency, and increase investor attractiveness, which ultimately contributes to better corporate performance. In addition, a strong competitive advantage is shown to increase Tobin’s Q, indicating that firms with superior strategic positioning and internal capabilities are more likely to strengthen their market position within the ASEAN-5 region. Therefore, these empirical results are consistent with RBV theory, which argues that sustainable success is driven by valuable internal resources and capabilities, as reflected in ESG implementation and competitive strategy [30, 31].

Second, the findings of this study also provide important support for Agency Theory, particularly through the acceptance of H4, which examines the moderating role of board size in the relationship between competitive advantage and corporate performance. According to Agency Theory, conflicts of interest may arise between managers and shareholders due to differences in objectives and information asymmetry. Therefore, governance mechanisms are needed to monitor managerial actions and ensure that decisions are aligned with shareholders’ interests. One of these mechanisms is board size. A larger board may provide stronger oversight, broader expertise, and more effective strategic supervision, enabling firms to utilize their competitive advantages more efficiently. As a result, the positive impact of competitive advantage on corporate performance can be strengthened through an effective board structure [21].

The effectiveness of competitive advantage in improving business performance is strengthened by a proportional board size, according to the research findings. According to agency theory, this validates the board's function as an internal oversight tool that can mitigate agency conflicts and increase the effectiveness of business strategies [3].

In support of H3, which investigates how gender diversity affects the connection between competitive advantage and corporate performance, the third result is that the study supports stakeholder theory. Every strategic choice, according to this idea, should take into account the needs of different stakeholders [18]. The research findings indicate that gender diversity on the board of directors can enrich perspectives, increase social legitimacy, and strengthen the effectiveness of competitive strategies in creating corporate value. Thus, these results extend the empirical evidence of Stakeholder theory that diversity at the managerial level is not only an issue of equality, but also a strategic resource that has an impact on improving corporate performance [33, 35].