Unpacking the link between ESG disclosure and firm performance in emerging economies

Purpose This study explores the relationships between Environmental, Social, and Governance (ESG) disclosure and firm performance (FP)—specifically operational (ROA), financial (ROE), and market performance (Tobin's Q)—for companies listed on the Palestine Exchange (PEX) and Amman Stock Exchange (ASE). Design/methodology/approach The analysis focuses on firms listed on PEX and ASE over the period 2015–2024. ESG disclosure data and financial indicators were compiled from annual reports and publicly available databases. To examine the impact of ESG and its sub-components on firm performance, the study employs panel data regression techniques, allowing for robust testing of the proposed hypotheses. Findings The results indicate that overall ESG disclosure is positively associated with both operational and market performance (ROA and Tobin's Q) among firms in Palestine and Jordan. However, when examining ESG sub-components individually, environmental (EVN) and social responsibility (CSR) disclosures exhibit a mixed relationship: they are positively linked to market valuation (Tobin's Q), but their association with operational and financial performance (ROA and ROE) is statistically insignificant. Governance (CG) disclosure demonstrates a consistent positive relationship with both ROA and Tobin's Q, while its effect on ROE is less pronounced. Notably, firms with larger asset bases and higher leverage tend to exhibit greater levels of ESG, EVN, CSR, and CG disclosure. Enhanced disclosure in these areas is generally accompanied by improvements in operational efficiency and market perception. Research limitations/implications The findings provide valuable insights for policymakers in Palestine and Jordan, highlighting the importance of ESG reporting in enhancing firm performance and market confidence. The study underscores the need for further development of ESG disclosure frameworks tailored to the unique characteristics of these markets. Originality/value By focusing on the Palestinian and Jordanian stock exchanges—markets that have received relatively limited attention in ESG research—this study contributes new evidence to the literature. It sheds light on the varied impact of ESG and its components on firm performance in emerging economies, providing insights that can inform both future research and practical policy development.