ESG Disclosure and Firm Value: Do Audit Committee Characteristics and Sustainability Committee Matter?

Abstract

This study examines how ESG disclosure (ESGD) influences firm value (FV) in Saudi Arabia. It also analyzes the moderating roles of audit committee (AC) characteristics and sustainability committees (SC) on this relationship. The sample consists of 100 top non-financial firms listed on the Saudi stock exchange (Tadawul) from 2015 to 2022, yielding 800 firm-year observations. Using pooled ordinary least squares (OLS), fixed effects regression, and GMM methods, the findings indicate a significant positive effect of ESGD on FV. Moreover, all AC characteristics and the sustainability committee positively and significantly strengthened this relationship. These findings carry important implications for investors, regulators, and corporate managers by highlighting how governance structures can influence financial performance, especially in emerging markets. This study contributes to the literature by expanding the discussion on the beneficial impact of AC characteristics and SC on FV within developing economies. Unlike earlier research that mainly focused on the direct link between ESGD and FV, this work underscores the role of governance factors in enhancing that relationship.

1. Introduction

Incorporating ESG into corporate strategies has become essential for adapting to evolving business models that prioritize sustainability as a key company objective (Bocken et al., 2014; Mohamed, 2023). However, embedding ESG within both strategic planning and daily operations is challenging, as firms strive to balance profit maximization with environmental responsibility and social wellbeing. This new approach demands a trade-off between the costs incurred and the traditional business goal of maximizing profits (Almulhim & Metwally, 2025; Alnaim & Metwally, 2024; Alomair & Metwally, 2025). Corporate leaders recognize that successfully managing this balance is crucial for building credibility and attracting greater investment, especially as stakeholders increasingly require ethical practices and adherence to sustainability standards in today’s market (Ahmed, 2022; A. B. M. Metwally et al., 2024a, 2024c).

With that being said, sustainability efforts have become central in both research and practical applications. ESGD and its impact on FV have emerged as a prominent topic in literature, garnering significant attention from researchers (Chung et al., 2024; Hussain et al., 2024; Maji & Lohia, 2024a, 2024b). This relationship has been widely explored globally to determine the impact of sustainability initiatives on FV. The present study aims to contribute to this ongoing debate through investigating this relationship within the context of Saudi Arabia, as a developing economy that tries to embrace sustainable investment practices in line with its economic development goals (Alnor, 2024; Hussain et al., 2024). With the kingdom’s ambitious Vision 2030 emphasizing sustainable growth and production as key objectives, companies in the Saudi market have begun showcasing their alignment with this vision by integrating ESG initiatives into their strategies and providing comprehensive disclosures regarding their CSR and governance practices (Exchange, 2024; Hussain et al., 2024).

The focus on ESGD emanated from its crucial role in guiding sustainable investments and improving corporate performance. Previous research has revealed that ESG ratings and disclosures is regarded as an indicator that companies are committed to sustainability principles (Buallay et al., 2020; Carnini Pulino et al., 2022). These transparent signals help in reducing stakeholders’ pressures and are anticipated to enhance the company’s reputation (Aydoğmuş et al., 2022; Meng et al., 2023). This rationale is supported in the literature by stakeholder theory, emphasizing the importance of embedding sustainable practices to enhance reputation (Freeman et al., 2021; Pesqueux & Damak-Ayadi, 2005). Furthermore, early studies have explored the correlation between ESGD and improved financial outcomes. Advocates of this research stream affirm the direct relationship between sustainability efforts and the company’s alignment with stakeholder priorities, enhancing long-term performance (Ademi & Klungseth, 2022; Atif et al., 2022; Donaldson & Preston, 1995).

Having said this, the literature on the impact of ESGD on FV reported mixed results. Some research concluded that ESGD positively and significantly affects FV (Alareeni & Hamdan, 2020; Alfalih, 2023; Aydoğmuş et al., 2022; Hussain et al., 2024; Veeravel et al., 2024). Conversely, other studies found a negative and significant relationship, while some indicated no significant correlation (Bao et al., 2024; Wasiuzzaman et al., 2023). Many of these initial studies had a global scope and focused on regional analyses without concentrating on specific contextual ramifications that can significantly impact the understanding of the actual influence of ESGD on FV.

Furthermore, a multitude of recent studies in the literature have focused on CSR, ESG performance, and ESGD within the Gulf Cooperation Council (GCC) region (Alahdal et al., 2024; Almaqtari et al., 2024; Almulhim & Metwally, 2025; Alomair & Metwally, 2025; A. B. M. Metwally et al., 2024a, 2024c). Making the distinction between ESG performance and ESG disclosure is crucial. ESG performance indicates a company’s true integration of ESG strategies into its operations by showing how well it implements and commits to environmental, social, and governance policies in practice. On the other hand, regardless of the true level of ESG performance, ESG disclosure is the reporting and sharing of ESG-related information, which may mostly be a symbolic activity meant to improve business image and influence stakeholders’ attitudes (Eliwa et al., 2021).

Nevertheless, while these studies contribute to understanding the significant role of ESGD in the GCC economy, firm performance, and value, none of them have specifically concentrated on the impact of ESGD on FV, except for Alahdal et al. (2024) and Al-Khouri and Abdul Basith (2022). The former examined the influence of ESGD on firm performance with a focus on board gender diversity as a moderating factor, whereas the latter focused solely on the direct relationship without exploring any moderation or mediation relationships, specifically within the GCC banking sector.

With that being stated, it is evident that ESGD studies have been conducted in the GCC region, primarily focusing on firm performance rather than FV. This highlights a research gap that calls for further exploration. Obtaining additional data on the specific circumstances of the country is crucial to fully understand how Saudi businesses are integrating ESGD (Alnor, 2024; Hussain et al., 2024). To address this gap and contribute to the existing knowledge, the present study will specifically investigate the influence of ESGD on FV within the Saudi Arabian context. Moreover, the study will explore whether the characteristics of the audit committee (AC) and sustainability committee (SC) have a moderating effect on this relationship. This study distinguishes itself by investigating an emerging Asian market, offering fresh insights into whether previous findings apply or vary in this setting.

The study aims to answer three key questions: (1) How does ESGD affect the FV of Saudi companies? (2) Do AC characteristics moderate the ESGD-FV relationship in Saudi Arabia? (3) Does the SC have a moderating effect on this relationship in the Saudi context? The findings demonstrate a significant positive impact of ESGD on FV. Moreover, all AC characteristics and the SC positively and significantly moderated the relationship, strengthening the link between ESGD and FV. Unlike earlier studies that mainly examined the direct connection between ESGD and FV, this research highlights how governance factors such as AC characteristics and SC can intensify this relationship.

This study makes several important contributions to existing literature. First, it addresses a research gap in the literature by exploring the relationship between ESGD and FV within the distinctive Middle Eastern-Asian context of Saudi Arabia. Understanding the specifics of sustainable investments in Saudi Arabia is crucial due to its significant role in the global economy and its position as a hub for international collaboration. Secondly, this study is among the first to investigate the moderating effects of both SC and all AC characteristics (i.e., AC size, AC independence, AC meeting frequency, and AC financial expertise) in the Saudi context. To the best of our knowledge, examining the combined moderating role of SC and AC characteristics is a key contribution of this research, especially as it represents one of the earliest efforts to explore these dynamics in an emerging market. Consequently, the findings offer valuable insights into how corporate governance is implemented in developing settings and its impact on the ESGD-FV relationship, thereby increasing investor confidence and highlighting the broader societal implications of business practices within the Kingdom. Finally, this study provides practical value for academics, industry professionals, investors, and company management by demonstrating that ESGD, together with SC and AC characteristics, collectively plays a crucial role in enhancing FV.

By employing an empirical approach, this study aims to provide actionable insights for a range of stakeholders. Corporate leaders can use our results to enhance their ESGD practices, promoting transparency and accountability to attract investment and manage scrutiny effectively. Policymakers may apply these findings to develop stronger regulatory frameworks that encourage sustainable business practices nationwide, emphasizing the activation of corporate governance through AC characteristics and the importance of SCs, both of which significantly increase FV. Ultimately, investors can draw on our conclusions to make well-informed decisions that align their financial goals with their ESG commitments.

The paper is structured as follows: Section 2 discusses the contextual implications of Saudi Arabia’s ESGD and governance regulations. Section 3 reviews relevant literature, identifies existing gaps, explores theoretical frameworks, and presents the study’s hypotheses. Section 4 details the research methodology and study design. Section 5, Section 6 and Section 7 present the results of the main analysis, further analysis and provide an in-depth discussion of their significance. Section 8 presents the discussion and policy recommendations. Finally, Section 9 concludes with a summary of key findings, broader implications, limitations of the study, and recommendations for future research.

2. Contextual Ramifications

Recently, Saudi Arabia’s first corporate governance code was issued by the Capital Market Authority (CMA) in 2006. This was due to a significant decline in the Saudi Stock Market led the CMA to put in place governance rules designed to protect shareholders and other interested parties (Alshehri, 2012). This governance framework was updated in 2017 with the release of a new code. The revised rules focus on creating effective governance structures for publicly traded companies in Saudi Arabia, clarifying the relationships between shareholders and the board of directors, as well as between the board and the company’s executive management (Exchange, 2024). They emphasize shareholders’ rights, ensuring fair and equal treatment without bias, and guaranteeing clear access to information so shareholders can fully exercise their legal entitlements. The updated code also takes into account the interests of other stakeholders in these companies (Almulhim & Metwally, 2025; Hussain et al., 2024).

The regulations offer precise directions regarding how boards of directors and their committees should be formed, including guidelines on skills, duties, meetings, and the responsibilities of members. These instructions highlight the need for active participation in decision-making by board members, managing conflicts of interest, and promoting honesty, integrity, and diligence as fundamental values for board conduct (Almulhim & Metwally, 2025; Exchange, 2024). While these reforms were critical for improving governance and company performance, enforcement in many areas remains weak. Several important governance practices continue to be optional for companies, such as the Board Gender Diversity quota (Hussain et al., 2024).

In parallel, ESG-related practices in Saudi Arabia have accelerated markedly in recent years, aligned with national efforts to diversify the economy and pursue sustainable development, underscoring ESG’s pivotal role. These advancements have reshaped corporate behavior, encouraging the adoption of socially responsible and environmentally sustainable business models within the kingdom (Grand View Research, 2023; Vision2030, 2023). The CMA has issued formal guidelines to encourage publicly listed companies to increase transparency through ESGD (Exchange, 2024). While this initiative represents an important progression toward market maturity, the adherence to ESGD remains largely discretionary.

Saudi Arabia’s Vision 2030 strategically incorporates multiple ESG-aligned objectives. On the environmental front, the vision aims to cultivate a competitive economic environment that promotes growth and job creation by leveraging the kingdom’s geographic advantages and resource wealth, attracting skilled global talent, and enhancing foreign investment. From a social angle, Vision 2030 prioritizes fostering a resilient and prosperous society anchored in contemporary Islamic values, national pride, and cultural heritage, while advancing world-class entertainment options, sustainable lifestyles, and high-quality healthcare and social services. Governance reforms under the vision advocate for greater transparency, accountability, and effectiveness in public and private sector operations, encouraging all societal actors—including individuals, businesses, and nonprofit entities—to actively participate in shaping a sustainable future (Grand View Research, 2023; Vision2030, 2023).

3. Literature Review

3.1. ESGD Impact on FV

In the literature the importance of sustainability initiatives from both strategic and ethical perspectives was explained using various theoretical frameworks (e.g., stakeholders theory, resource dependency theory, legitimacy theory, and agency theory). Stakeholder theory suggests that engaging actively with a range of stakeholder groups can improve a company’s financial performance and value by aligning its objectives with a diverse set of interests (Donaldson & Preston, 1995; Freeman et al., 2021). Within this framework, ESGD acts as an essential tool for showing accountability and offering stakeholders important non-financial information, thus reducing information asymmetry, attracting investment capital, and minimizing agency costs, all of which contribute positively to the FV (Cheng et al., 2014).

Legitimacy theory posits that companies operate within a societal framework that expects them to maintain public trust and adhere to social norms. If they fail to do so, they may face reputational damage and financial consequences (Maji & Lohia, 2024b). ESG initiatives demonstrate that companies are committed to these societal values, thereby enhancing its legitimacy. Resource-based theory considers ESG as a strategic asset—an intangible resource that can improve corporate reputation, drive innovation, attract values-driven investors, and secure essential resources needed for a competitive advantage (Barney, 1991; Maji & Lohia, 2024a).

Additionally, signaling theory views ESGD as a sophisticated communication tool through which companies with strong sustainability commitments differentiate themselves in the eyes of socially responsible investors (Lys et al., 2015). Together, these perspectives highlight ESG as a complex strategic practice that significantly impacts corporate strategies and stakeholder interactions in today’s markets (Maji & Lohia, 2024a, 2024b). Additional research using institutional and legitimacy theories highlights how CSR practices enhance organizational credibility and trust within society (Alazzani et al., 2021; Deegan, 2019; El Khoury et al., 2023). This increasing demand for transparency has led companies to expand their reporting to include ESG and other non-financial disclosures alongside traditional financial disclosures (Diab & Metwally, 2020; A. Metwally, 2022; A. Metwally et al., 2021; A. B. M. Metwally et al., 2024b, 2022).

Having said this, both stakeholders and legitimacy theories emphasize the external pressures for ESG disclosure; resource-based and signaling theories illustrate how firms can strategically use ESG disclosure as a valuable resource and communication mechanism, while agency theory explains its role in reducing information asymmetry and agency costs. Together, these perspectives are integrated to show that ESG disclosure operates simultaneously as a response to stakeholder demands, a source of strategic advantage, a credibility-enhancing signal, and a governance mechanism.

In advanced economies, especially the U.S., numerous empirical studies examine the relationship between ESG activities and FV. For instance, Nollet et al. (2016) observed a U-shaped connection between overall ESG scores and firm performance, though a clear linear pattern was not evident. Supporting this, research by Brogi and Lagasio (2019) and Alareeni and Hamdan (2020) generally shows positive impact of ESG engagement and financial success. Additionally, Alareeni and Hamdan (2020) find that while environmental and social dimensions may sometimes reduce return on equity, all ESG factors positively impact Tobin’s Q (FV). Similarly, Shahzad et al. (2022) report that CSR correlates positively with accounting metrics, but results are mixed for market-based measures. Other studies by Atif et al. (2022) and Ademi and Klungseth (2022) confirm ESG’s beneficial influence on financial performance. Conversely, some research, like Matuszewska-Pierzynka (2021), indicates negative effects of ESGD on FV.

Research across developing countries also reported mixed results. Aboud and Diab (2018) document that Egyptian firms with strong ESG profiles experience improved liquidity, higher trading volumes, and narrower bid-ask spreads, leading to better financial performance. Bahadori et al. (2021) confirm that prioritizing sustainability provides a competitive advantage in multiple developing economies. However, other findings suggest that in such regions, investors tend to favor strong social and governance practices over environmental efforts (Al-Hiyari & Kolsi, 2021). In the Asian context, studies mainly focusing on China show positive ESGD effects on FV (Chen & Xie, 2022; Zhou et al., 2022). Conversely, research from other Asian markets presents a more complex scenario. Some reports indicate that investors are sometimes willing to accept lower financial returns to promote social goals, with high environmental or social scores not necessarily increasing firm value but also not harming it (Duque-Grisales & Aguilera-Caracuel, 2021; Johnson et al., 2019). Other studies highlight an inflection point where initial negative financial impacts of ESGD eventually turn positive as firms deepen their sustainability efforts, implying that advanced ESG practices can generate long-term value even in emerging markets (Ghardallou & Alessa, 2022).

There are several channels to describe the connection between ESG disclosure and business value. Firstly, increased transparency lowers the cost of capital and improves access to external finance by eliminating information asymmetry, which eases financing limitations (Eliwa et al., 2021; Shi et al., 2024). Second, businesses with more robust ESG disclosure are more likely to receive government subsidies and assistance, especially in environmentally sensitive industries, which directly raises the value of the company (Zhang et al., 2023). Third, by giving stakeholders and investors trustworthy information to track management conduct, ESG disclosure lowers agency costs and improves internal governance systems (Hamdouni, 2025). Furthermore, better ESG reporting builds credibility and reputation, which in turn builds investor confidence and client loyalty, ultimately increasing business value (Hamdouni, 2025; Itan et al., 2025).

To sum up, empirical findings on the ESGD–FV relationship vary considerably. While several studies argue that ESGD tends to enhance FV—supported by research in Saudi Arabia and other regions (Alahdal et al., 2024; Almulhim & Metwally, 2025; Alomair & Metwally, 2025; Hussain et al., 2024; A. B. M. Metwally et al., 2024b; Veeravel et al., 2024; Yu et al., 2018)—others find neutral or negative relationships. Scarce research exists specifically on Saudi Arabia, presenting an opportunity for deeper investigation to better understand how Saudi firms are incorporating ESGD within their unique economic and regulatory context (Alnor, 2024; Hussain et al., 2024). Based on this comprehensive review, we hypothesize

H1. 

There is a positive relationship between ESGD and FV among Saudi listed companies.

3.2. AC Characteristics’ Moderating Role

Agency theory considers the auditing process, whether internal or external, as a crucial monitoring mechanism to enhance ESGD and FV, along with reducing information asymmetry and opportunistic behaviour (Jensen & Meckling, 1976). Owners of the company leverage from disclosing financial and non-financial data as it reduces agency costs (Fuadah et al., 2022; Harjoto & Jo, 2011; Kim et al., 2014; Morris, 1987). The introduction of ACs in companies was made for one main objective, which is observing the financial and nonfinancial reporting processes, and decreasing the amount of information asymmetry (Appuhami & Tashakor, 2017; Dwekat et al., 2020). In other words, AC is responsible for preparing, presenting, and ensuring the accuracy of financial statements, adhering to relevant accounting principles and standards, and overseeing internal controls in line with applicable financial accounting standards (Fuadah et al., 2022). In that sense, the presence of AC enhances investor and stakeholder confidence in the reliability and objectivity of financial statements, while also enhancing efficiency in corporate governance practices (Biçer & Feneir, 2019; Fuadah et al., 2022).

The Blue-Ribbon Committee indicates that the effectiveness and performance of the AC are influenced by factors such as size, independence, presence of financial expertise, meeting frequency, and chair independence (Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees, 1999). Studies by Bédard et al. (2004), and Appuhami and Tashakor (2017), argue that a larger AC may be more effective because of the greater diversity in knowledge and experience it can offer. Conversely, smaller ACs might lack adequate resources, which could hinder their monitoring and oversight capabilities (Omair Alotaibi & Hussainey, 2016). Additionally, larger ACs may face communication issues that could compromise decision-making quality (Jun Lin et al., 2008). Some researchers also point out that AC size does not necessarily impact the credibility of sustainability reports (Al-Shaer & Zaman, 2018). Additionally, studies that concentrated on the impact of AC size on FV reported mixed results as some studies reported a positive impact on FV (Al-Matari et al., 2014; Alqatamin, 2018), while others reported a negative impact on FV (Fariha et al., 2021).

Regarding AC independence, Fama (1980) and Fama and Jensen (1983) suggest that independent audit committee members can help lessen agency problems, reduce information gaps, and prevent management collusion by effectively overseeing and monitoring. Many studies focus on the AC’s role in regulating financial accounting, ensuring shareholders receive honest, credible, and relevant information (Karamanou & Vafeas, 2005; Sun et al., 2014; Vafeas, 2005). Most prior research emphasizes the benefits of having independent AC members. Additionally, studies that concentrated on the impact of AC independence on FV reported mixed results as some studies reported a positive impact on FV (Al-Matari et al., 2014; Alqatamin, 2018), while others reported a negative impact on FV (Fariha et al., 2021).

Furthermore, the frequency of AC meetings reflects how many meetings are held throughout the fiscal year. An increased number of meetings can enhance experience and knowledge in areas such as accounting, auditing, and CSR (Abbott et al., 2004). This can lead to improved responsibilities in monitoring, supervision, and reporting quality (Karamanou & Vafeas, 2005). Additionally, the AC’s primary responsibilities include helping the board of directors choose and appoint an external auditor, reviewing financial processes and internal audits, and communicating with corporate financial leaders to understand the company’s financial and accounting data (Elmanaseer & Gerged, 2025). In Australia, Bryce et al. (2015) identify a significant negative link between the frequency of AC meetings and discretionary accrual levels. Additionally, studies that concentrated on the impact of AC meeting frequency on firm value reported mixed results, as some studies reported a positive impact on FV (Al-Okaily & Naueihed, 2019; Salloum et al., 2014; Sharma et al., 2009), while others reported a negative impact on FV as they found that it became procedural meetings without real impact (Elmanaseer & Gerged, 2025).

Similarly, an AC financial expert assesses the accounting, financial knowledge, and experience of AC members. Governance codes often require the AC to include at least one member with relevant accounting and financial expertise. The main duties of the AC involve ensuring the accuracy of financial reports and managing risks through internal control systems (Fariha et al., 2021). An effective AC needs a member with financial expertise to understand complex financial and reporting issues (Abbott et al., 2004). Without relevant financial and accounting knowledge, AC members are less capable of addressing reporting challenges (Agrawal & Chadha, 2005). Additionally, having financially skilled AC members can help clarify issues that concern managers and external auditors, leading to improved financial disclosures. This enhances transparency in corporate reporting, reduces agency costs caused by information asymmetry (Bédard & Gendron, 2010), and increases FV (Al-Matari et al., 2014).

However, most of the previous studies reported a direct relationship between AC characteristics (i.e., AC size, AC independence, AC meeting frequency, and AC financial expertise) and FV. Some studies in the literature have confirmed the moderating role of AC characteristics in the relationship between: CSR and firm performance (Abdullah, 2024); corporate sustainability and FV (Elmanaseer & Gerged, 2025); and sustainability reporting and FV (Kuzey et al., 2023). Hence, the current study proposed the following hypotheses:

H2. 

AC size moderates the association between ESGD and Saudi-listed companies’ FV.

H3. 

AC independence moderates the association between ESGD and Saudi-listed companies’ FV.

H4. 

AC meeting frequency moderates the association between ESGD and Saudi-listed companies’ FV.

H5. 

AC financial expertise moderates the association between ESGD and Saudi-listed companies’ FV.

3.3. SC Moderating Role

The increasing presence of SCs on corporate boards reflects a shift in corporate governance, motivated by the need for transparent and effective communication about sustainability initiatives with all stakeholders (Amran et al., 2014). This trend supports both agency and stakeholder theories. From an agency perspective, having an SC and transparent ESGD reassures stakeholders that management is acting in their best interests (Almulhim & Metwally, 2025; Alodat & Hao, 2025). Stakeholders trust SCs because of their proactive role in improving ESGD, refining policies, and enhancing overall sustainability within the organization (Baraibar-Diez & D. Odriozola, 2019).

Research on how SCs influence ESGD and FV yields mixed results. Some studies show a positive and significant effect of SCs (Almulhim & Metwally, 2025; Alodat & Hao, 2025; Elmghaamez et al., 2024), suggesting their beneficial impact. Others, however, find no significant influence (Uyar et al., 2021). From a strategic business perspective, sustaining strong stakeholder relationships by aligning company goals with ESG objectives enhances overall performance (Peterson & Philpot, 2007). The sustainability committee, as a specialized board sub-committee, is crucial in guiding resource allocation to improve ESGD and thereby increase firm value (Kılıç et al., 2021). This discussion emphasizes establishing a dedicated sustainability committee and actively engaging in ESG activities work together to strengthen stakeholder relationships and ultimately boost organizational performance. Based on these theoretical foundations and recent empirical findings, this study proposes the following hypothesis:

H6. 

SC moderates the association between ESGD and Saudi-listed companies’ FV.

4. Research Design

4.1. Data Description

The moderating role of the sustainability and audit committees on the link between ESGD and FV of listed firms on the Saudi Stock Exchange (SSE) was studied in this research. The sample consisted of 800 firm-year observations because the data, which consisted of firm value, ESG, and other financial information, was carried out during an 8-year period, from 2015 to 2022, for the top 100 listed companies on the Saudi stock exchange. Financial sector listed companies are not included in the sample because of their unique nature and attributes that set them apart from other SSE listed companies (Almulhim & Metwally, 2025; Umar et al., 2023). To ensure the quality and dependability of the data, a variety of data sources were used, including annual reports, corporate governance, and sustainability. Financial statement information was obtained from reputable databases including Bloomberg, Tadawul, and Eikon, and we analyzed the study data employing panel data analysis.

4.2. Measurement of Variables

4.2.1. The Dependent Variables: Firm Value (FV)

In earlier research, Tobin’s Q (TQ), a market value-based measurement of company value, was frequently utilized as a rough estimate of firm value (Almulhim & Metwally, 2025; Alodat & Hao, 2025; Rastogi et al., 2023). Combining the equity market value with the liabilities book value over the book value of assets yields Tobin’s Q. The more growth potential and investment possibilities a company has, the greater its Tobin’s Q value.

4.2.2. The Independent Variable: ESG Disclosure (ESGD)

Three aspects—environmental, social, and governance—compose the ESG score index, which is utilized to measure ESGD (Almulhim & Metwally, 2025; Alodat & Hao, 2025; Alomair & Metwally, 2025; Umar et al., 2023). The Bloomberg ESG score for the sampled companies is the ESG score. Firms that disclosed all the ESG data that Bloomberg has documented scored 100%, while those that did not disclose any ESG data are evaluated at 0%. A higher score denotes more exposed information. Bloomberg analysts’ evaluations of the company’s ESG index serve as the basis for these scores. Every data point was assigned a weight based on its significance and relevance to the particular industrial sector.

4.2.3. The Moderating Variable

Audit Committee (AC) characteristics: The following AC attributes were selected: size, frequency of meetings, financial expertise, and independence (Desoky, 2024; Dwekat et al., 2020; Umar et al., 2023). AC meeting frequency is the number of meetings held throughout the year, AC financial expertise is the number of financial experts on the AC, AC independence is the percentage of independent directors on the AC, and AC size is the number of directors nominated to the AC.

Sustainability committee (SC): The existence of a SC is included in the research as a moderator to investigate its role in associating ESG to FV; it is a binary variable that takes one if the committee is present and zero otherwise (Alodat & Hao, 2025; Orazalin et al., 2023).

4.2.4. The Control Variables

A number of variables that may affect FV were taken into account, including firm size, firm leverage, board independence, board meetings, board size, and gross domestic product rate (Alodat & Hao, 2025; Truong, 2024). An overview of each variable’s measurements is given in

Table 1. Variables’ definitions.

Variable	Measurement
Dependent variable
Tobin’s Q (TQ)	(equity market value + book value of liabilities) ÷ book value of assets
Independent variable
ESGD	Bloomberg score for ESG disclosure.
Moderating Variables
AC size (ACS)	No. of members of the AC.
AC independence (ACI)	Percentage of AC independent members
AC meeting frequency (ACM)	No. of meetings held by the AC.
AC financial expertise (ACEX)	No. of financial experts on the AC.
Sustainability committee (SC)	Equals 1 if the firm has a SC, 0 otherwise
Control variables
Board Size (BS)	The overall NO. of board members
Board Independence (BI)	The proportion of independent directors on the board
Board meetings (BM)	No. of meetings held by the board.
Firm Size (SIZE)	The natural logarithm of total assets
Firm Leverage (LEV)	The ratio of total debt to total assets
Gross domestic product rate (GDP)	The annual GDP growth rate

.

4.3. The Study Models

Pooled OLS and fixed effects (FE) models were utilized to create baseline data in order to evaluate the study hypotheses. In this case, the Hausman test findings demonstrated that an FE model outperforms a random effects model. The fixed-effects regression technique accounts for the problem of omitted-variable bias, which arises from unobservable company-level factors that influence the association between our dependent and independent variables.

In order to address the heteroscedasticity issue shown by the Breusch–Pagan/Cook–Weisberg test and further enhance the findings’ dependability, we employed robust standard errors. All models incorporate industry and year-fixed effects in the manner described below:

TQ_it = β₀ + β₁ESGD_it + β₂BS_it + β₃BI_it + β₄BM_it + β₅SIZE_it + β₆LEV_it + β₇GDP_it + β_t + β_ind + ε_it

(1)

TQ_it = β₀ + β₁ESGD_it + β₂ACS_it + β₃ESGD*ACS_it + β₄BS_it + β₅BI_it + β₆BM_it + β₇SIZE_it + β₈LEV_it + β₉GDP_it + β_t + β_ind + ε_it

(2)

TQ_it = β₀ + β₁ESGD_it + β₂ACI_it + β₃ESGD*ACI_it + β₄BS_it + β₅BI_it + β₆BM_it + β₇SIZE_it + β₈LEV_it + β₉GDP_it + β_t + β_ind + ε_it

(3)

TQ_it = β₀ + β₁ESGD_it + β₂ACM_it + β₃ESGD*ACM_it + β₄BS_it + β₅BI_it + β₆BM_it + β₇SIZE_it + β₈LEV_it + β₉GDP_it + β_t + β_ind + ε_it

(4)

TQ_it = β₀ + β₁ESGD_it + β₂ACEX_it + β₃ESGD*ACEX_it + β₄BS_it + β₅BI_it + β₆BM_it + β₇SIZE_it + β₈LEV_it + β₉GDP_it + β_t + β_ind + ε_it

(5)

TQ_it = β₀ + β₁ESGD_it + β₂SC_it + β₃ESGD*SC_it + β₄BS_it + β₅BI_it + β₆BM_it + β₇SIZE_it + β₈LEV_it + β₉GDP_it + β_t + β_ind + ε_it

(6)

where TQ is firm value; ESGD is ESG disclosure; BS is board size; BI is board independence; BM is board meetings; LEV is firm leverage; SIZE is firm size; GDP is annual GDP growth rate; ACS is audit committee size; ACI is audit committee independence; ACM is audit committee meetings; ACEX is audit committee financial expertise; SC is sustainability committee; β_t is time FE; and β_ind is industry FE.

5. Main Results

5.1. Descriptive Statistics and Pairwise Correlation

The descriptive statistics for each variable included in the study analysis are summarized in

Table 2. Descriptive statistics.

Variables	n	Minimum	Maximum	Mean	Median	Std. Dev.
TQ	800	0.03	5.99	1.75	1.03	1.63
ESGD	800	3.31	51.46	17.87	11.16	12.91
BS	800	7.00	11.00	9.58	9.00	1.01
BI	800	22.22	1.00	42.12	36.36	13.86
BM	800	3.00	16.00	6.25	6.00	2.66
SIZE	800	7.83	13.50	10.97	10.83	1.48
LEV	800	0.12	0.89	0.62	0.61	0.21
GDP	800	−0.04	0.75	0.03	0.03	0.05
ACS	800	2.00	7.00	4.77	5.00	1.73
ACI	800	0.14	1.00	0.48	0.43	0.23
ACM	800	3.00	14.00	5.54	5.00	2.22
ACEX	800	0.00	3.00	1.42	1.00	1.12
SC	800	0.00	1.00	0.31	1.00	0.46

Notes: The definitions for all variables can be found in Table 1.

. It indicates that the FV (TQ) ranges from 0.03 to 5.99, with a mean value of 1.75. ESGD ranges from a minimum of 3.31% to a maximum of 51.46%, with an average of 17.87%. The mean of board size is 9.58, with a minimum board size of 7 and a maximum of 11. With a mean of 42.12%, the greatest percentage of independent directors is 100%, while the lowest is 22.2%. The average number of board meetings is 6.25, with a high of 16 and a low of 3. Additionally, Table 2 indicates that the average AC size is 4.77, with a minimum of 2.00 and a maximum of 7.00. With a minimum of 14% and a high of 100%, AC independence has an average value of 48%. The AC in the tested businesses held an average of almost six meetings every period over the research period, with the largest number of meetings being 14, and the minimum being 3. The data indicates that the mean for AC financial expertise is 1.42. In reference to the SC variable, 31% of the data show that a sustainability committee is in place. Firm size, LEV and GDP mean values are 10.97, 62% and 0.03, respectively.

Pearson’s correlation of all the variables is computed and presented in

Table 3. Correlation.

Variables	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)	(9)	(10)	(11)	(12)	(13)	VIF
(1) TQ	1.000													-----
(2) ESGD	0.145 ***	1.000												1.84
(3) BS	0.171 ***	0.022	1.000											1.09
(4) BI	0.112 ***	−0.020	0.114 ***	1.000										1.05
(5) BM	0.003	0.065 *	−0.228 ***	0.094 ***	1.000									1.21
(6) SIZE	0.034	0.222 ***	−0.050	0.055	0.281 ***	1.000								1.35
(7) LEV	−0.431 ***	−0.094 **	0.059 *	0.086 **	−0.076 **	0.269 ***	1.000							1.23
(8) SC	0.109 ***	0.456 ***	0.032	−0.074 **	0.043	0.136 ***	−0.129 ***	1.000						1.82
(9) ACS	0.159 ***	0.073 **	0.050	0.016	−0.049	−0.185 ***	−0.171 ***	0.128 ***	1.000					1.17
(10) ACI	0.127 ***	0.147 ***	−0.043	−0.019	0.133 ***	0.193 ***	0.002	0.092 ***	−0.227 ***	1.000				1.12
(11) ACM	0.245 ***	0.037	0.091 **	−0.071 **	−0.062 *	0.001	−0.198 ***	0.020	0.102 ***	−0.012	1.000			1.08
(12) ACEX	0.104 ***	0.027	−0.005	−0.045	−0.048	0.037	−0.034	−0.035	0.128 ***	0.069 *	0.024	1.000		1.05
(13) GDP	0.097 **	−0.021	−0.002	−0.007	−0.021	−0.040	−0.033	−0.017	0.048	0.071 **	−0.009	−0.033	1.000	1.02
Mean VIF														1.25

*** p < 0.01, ** p < 0.05, and * p < 0.10 all denote significant correlations.

in order to verify multicollinearity among the research variables. According to the data, ESGD and SC had the strongest association (0.456). Additionally, they demonstrate a moderate to low association between the variables. Consequently, there are no issues with multicollinearity among the variables that were suggested to evaluate the research hypotheses. It is also evident that the TQ has a significant positive correlation with ESGD, SC, BS, BI, GPD and all of the AC variables (ACS, ACI, ACM, and ACEX).

5.2. Main Effects

5.2.1. ESGD and FV (Model 1)

According to Hypothesis 1, business value and ESGD are positively correlated. According to the regression results from Model 1 in

Table 4. The association between ESGD and FV—Model 1.

Variables	Model 1
	Pooled OLS		FE
	Coef.	Z	Coef.	Z
ESGD	0.008	2.07 **	0.006	2.28 **
BS	0.294	5.80 ***	0.107	1.24
BI	0.016	4.33 ***	0.005	1.22
BM	0.035	1.75 *	0.048	1.92 *
SIZE	0.192	5.17 ***	0.128	2.36 **
LEV	−3.805	−15.46 ***	−6.812	−9.81 ***
GDP	3.232	2.98 ***	1.614	2.83 **
Constant	−1.498	−2.39 **	3.548	2.83 ***
Year (FE)	Yes
industry (FE)	Yes
Adj. R2	0.277		0.199
F-statistic	45.240 ***		18.457 ***
Hausman test	FE
No. obs.	800		800

*** p < 0.01, ** p < 0.05, * p < 0.10.

, there is a significant positive correlation between ESGD, and firm value as measured by Tobin’s Q, indicating that ESGD increases company value. Thus, the first hypothesis is validated. These results are consistent with the tenets of stakeholders’ theory since they highlight the ways in which proactive engagement with a range of stakeholders—including workers, clients, communities, and investors—through open and honest ESGD can promote shared value creation, trust, and long-term relationships. Additionally, the findings are consistent with resource dependency theory as they clarify how companies may improve their access to essential resources and lessen external resource restrictions by strategically using ESG information. Additionally, the findings provide insights in line with agency theory by emphasizing the ways in which strong ESGD can help to align the interests of various stakeholders, thereby lowering information asymmetry and potential agency conflicts and ultimately fostering better corporate governance and performance. The results are also consistent with previous empirical research that found a positive and robust association between firm value and ESGD (Almulhim & Metwally, 2025; Alodat & Hao, 2025; Hussain et al., 2024). The results display that FV and BS, BI, BM, GDP and Firm Size have a strong positive link with respect to control variables. In addition, leverage and FV are negatively correlated (Alahdal et al., 2024; Hussain et al., 2024).

5.2.2. Moderating Role of AC Attributes (ACS and ACI)

Table 5. ACS and ACI’s moderating role in the association between ESGD-FV.

	Model 2				Model 3
	Pooled OLS		FE		Pooled OLS		FE
	Coef.	Z	Coef.	Z	Coef.	Z	Coef.	Z
ESGD	0.006	2.43 **	0.006	2.31 **	0.005	1.99 **	0.009	2.03 **
ACS	0.082	2.85 **	0.018	2.52 **	------	------	------	------
ESGD*ACS	0.005	2.25 **	0.010	1.98 *	------	------	------	------
ACI	------	------	------	------	0.577	2.81 ***	0.384	4.74 ***
ESGD*ACI	------	------	------	------	0.048	3.38 ***	0.029	2.35 **
BS	0.294	5.81 ***	0.102	1.23	0.295	5.87 ***	0.124	1.47
BI	0.014	4.01 ***	0.006	1.19	0.015	4.15 ***	0.005	1.48
BM	0.033	1.63	0.049	1.89 *	0.039	2.01 **	0.046	1.96 *
SIZE	0.196	5.17 ***	0.129	2.38 **	0.181	4.86 ***	0.088	1.85 *
LEV	−3.697	−15.01 ***	−6.820	−9.80 ***	−3.724	−15.27 ***	−6.52	−9.56 ***
GDP	3.175	2.95 ***	1.572	1.83 *	3.140	2.92 ***	1.586	1.89 *
Constant	−1.420	−2.24 **	3.474	2.74 ***	−1.239	−1.97 **	3.569	2.89 ***
Year (FE)	Yes
industry (FE)	Yes
Adj. R2	0.288		0.201		0.296		0.213
F-statistic	37.215 ***		14.364 ***		38.596 ***		18.872 ***
Hausman test	FE
No. obs.	800		800		800		800

*** p < 0.01, ** p < 0.05, * p < 0.10.

provides the results from the two models concerning how various AC characteristics (ACS and ACI) affect the ESGD-FV relationship. The findings of Model 2 indicate a significant positive association between firm value and AC size. ESGD and AC size interaction has a significant and positive influence on company value (Tobin Q). This suggests that the AC size plays a positive and important role in monitoring and overseeing successful practices, which in turn improves firm value. This finding implies that ACS is beneficial in influencing management behavior and guaranteeing strategic decision-making, such as the decision to invest in ESGD to improve the revenue quality of a company. Additionally, the outcome is consistent with many studies in the literature (Mohammadi et al., 2020; Omair Alotaibi & Hussainey, 2016; Umar et al., 2023). In addition, the legitimacy theory also suggests that a larger AC size may increase perceived legitimacy because of the members’ varied experiences and viewpoints and their capacity to carry out supervisory duties. The current investigation confirms this claim. AC size increases the credibility or efficacy of monitoring ESGD policies, which raises the value of companies listed in Saudi Arabia. Thus, our second hypothesis is supported and confirmed by this data.

According to Model 3’s findings, there is a statistically significant positive correlation between business value and the independence of the AC. Moreover, there is a positive and significant impact of the interaction between ESGD and AC independence (ESGD*ACI) on company value as determined by Tobin’s Q. Thus, our third hypothesis (H3) is validated.

According to this data, companies that have a larger percentage of independent AC members are more likely to use ESG practices in order to increase their value. This outcome is in line with the viewpoint of agency theory, by monitoring business operations, independent AC members help to mitigate agency issues, lessen information asymmetry, and stop management collusion. They therefore aid in the growing acceptance of sustainability assurance. The findings are also consistent with (Al-Shaer & Zaman, 2018; Dwekat et al., 2020), which show that the credibility of sustainability reports is improved by AC independence. Moreover, a higher ratio of independent members on the AC may diminish potential stakeholder agency conflicts and improve the quality of ESGD, which improves the firm’s value.

5.2.3. AC Attributes (ACM and ACEX) Moderating Impact

Table 6. ACM and ACEX moderating role in the association between ESGD-FV.

	Model 4				Model 5
	Pooled OLS		FE		Pooled OLS		FE
	Coef.	Z	Coef.	Z	Coef.	Z	Coef.	Z
ESGD	0.007	1.82 *	0.006	2.10 **	0.008	1.96 *	0.007	2.23 **
ACM	0.083	4.45 ***	0.033	1.87 *	------	------	------	------
ESGD*ACM	0.003	2.33 **	0.005	2.15 **	------	------	------	------
ACEX	------	------	------	------	0.124	2.89 ***	0.088	2.24 **
ESGD*ACEX	------	------	------	------	0.006	1.89 *	0.008	2.10 **
BS	0.273	5.43 ***	0.097	1.12	0.292	5.78 ***	0.134	1.55
BI	0.016	4.49 ***	0.005	1.06	0.016	4.48 ***	0.005	1.19
BM	0.026	1.32	0.049	1.88 *	0.028	1.42	0.052	1.88 *
SIZE	0.173	4.68 ***	0.127	2.34 **	0.183	4.93 ***	0.116	2.12 **
LEV	−3.519	−14.16 ***	−6.790	−9.72 ***	−3.749	−15.27 ***	−6.87	−9.91 ***
GDP	3.371	3.16 ***	1.653	1.87 *	3.427	3.17 ***	1.752	1.94 *
Constant	−1.184	−1.89 *	3.563	2.81 ***	−1.332	−2.11 **	3.310	2.62 ***
Year (FE)	Yes
industry (FE)	Yes
Adj. R2	0.300		0.209		0.292		0.209
F-statistic	39.420 ***		14.913 ***		36.780 ***		15.032 ***
Hausman test	FE
No. obs.	800		800		800		800

*** p < 0.01, ** p < 0.05, * p < 0.10.

presents the outcomes from the two models concerning how particular AC attributes (ACEX and ACM) affect the ESGD-FV association. The results of Model 4 demonstrate that the AC meetings frequency and FV are positively associated in a highly significant way. In addition, the interaction between the frequency of AC meetings and ESGD (ESGD*ACM) has a substantial and positive impact on FV (Tobin Q). This illustrates that H4 is supported, demonstrating that businesses with more frequent AC meetings are more likely to adopt ESG, which enhances FV. This result confirms the outcomes of (Al-Shaer & Zaman, 2018), who emphasize the importance of regular AC meetings in boosting the credibility of ESGD. Furthermore, (Dwekat et al., 2020) declares that if ACs met more frequently, they would have greater auditory, accounting, and sustainability experience and knowledge. They would also boost the tasks related to reporting, control, and supervision, which would improve monitoring performance and raise the company’s value.

Moreover, Model 5’s findings demonstrate a highly significant positive link between firm value and AC financial expertise. Additionally, there is a significant and positive effect on company value (Tobin Q) from the interplay between ESGD and AC financial expertise (ESGD*ACEX). This finding supports H5, which states that businesses having at least one AC financial specialist member are more likely to use ESG reports, which raises company value. This outcome is consistent with the research conducted by Zaman et al. (2021) and Al-Shaer and Zaman (2018). To improve the credibility of ESGD and assurance, which raises the firm’s value, AC financial expert members could alleviate potential stakeholder–agency conflicts, attract human resources, lower agency costs associated with the flow of information, and clarify issues that might push managers and auditors to a higher degree of financial disclosure (Dwekat et al., 2020; Zaman et al., 2021).

5.2.4. SC Moderating Role (Model 6)

The influence of the sustainability committee on the link between ESGD and FV is seen in

Table 7. SC moderating role in the association between ESGD and FV—Model 6.

Variables	Model 6
	Pooled OLS		FE
	Coef.	Z	Coef.	Z
ESGD	0.026	2.95 ***	0.008	1.96 *
SC	0.357	1.96 *	0.296	2.17 **
ESGD*SC	0.024	2.23 **	0.029	2.22 **
BS	0.302	5.94 ***	0.114	1.33
BI	0.016	4.40 ***	0.006	1.42
BM	0.036	1.86 *	0.050	1.92 *
SIZE	0.192	5.17 ***	0.138	2.54 **
LEV	−3.899	−15.64 ***	−6.822	−9.81 ***
GDP	3.288	3.04 ***	1.632	1.85 *
Constant	−1.713	−2.71 **	3.374	2.68 ***
Year (FE)	Yes
industry (FE)	Yes
Adj. R2	0.282		0.198
F-statistic	35.925 ***		14.934 ***
Hausman test	FE
No. obs.	800		800

*** p < 0.01, ** p < 0.05, * p < 0.10.

. The results of Model 6 show that business value and the sustainability committee have a highly significant positive correlation. Additionally, the interaction between the ESGD and the presence of a sustainability committee (ESGD*SC) has a significant and positive impact on firm value (Tobin Q). This indicates that the sustainability committee’s function extends beyond promoting ESG disclosure procedures, it also fortifies the effectiveness of these disclosures to increase company value. This illustrates that H6 is supported.

The findings imply that a sustainability committee in conjunction with ESG initiatives may greatly increase the value of the company. The results suggest that ESG participation, through environmental, social, and governance activities, significantly contributes to company value in the presence of a sustainability committee since the ESG measure reflects the aggregate effect of firm environmental, social, and governance performance. All things considered, this supports the stakeholders’ theory that when a sustainability committee is in place, businesses strengthen their relationships with stakeholders by attending to their needs and providing clear ESGD, which increases firm value (Almulhim & Metwally, 2025; Alodat & Hao, 2025; Baraibar-Diez & D. Odriozola, 2019).

6. Robustness Checks

In order to confirm our primary analysis, we replace the firm value measurement with ROA, which is frequently used as a stand-in for a company’s value (Abogazia et al., 2022). This is calculated by dividing the average total assets by the net income.

Table 8. Results of the alternate measurements of FV (ROA).

Variables	Model 1 FE		Model 2 FE		Model 3 FE		Model 4 FE		Model 5 FE		Model 6 FE
	Coef.	Z	Coef.	Z	Coef.	Z	Coef.	Z	Coef.	Z	Coef.	Z
ESGD	0.004	3.52 ***	0.005	3.59 ***	0.004	3.49 ***	0.006	3.51 ***	0.005	3.53 ***	0.008	2.07 **
ACS	------	------	0.004	2.42 **	------	------	------	------	------	------	------	------
ESGD* ACS	------	------	0.008	1.95 *	------	------	------	------	------	------	------	------
ACI	------	------	------	------	0.003	2.28 **	------	------	------	------	------	------
ESGD* ACI	------	------	------	------	0.008	2.12 **	------	------	------	------	------	------
ACM	------	------	------	------	------	------	0.003	1.87 *	------	------	------	------
ESGD* ACM	------	------	------	------	------	------	0.005	2.25 **	------	------	------	------
ACEX	------	------	------	------	------	------	------	------	0.005	1.94 *	------	------
ESGD* ACEX	------	------	------	------	------	------	------	------	0.007	2.06 **	------	------
SC	------	------	------	------	------	------	------	------	------	------	0.019	3.37 ***
ESGD* SC	------	------	------	------	------	------	------	------	------	------	0.010	3.40 ***
BS	0.003	1.50	0.004	1.43	0.003	1.50	0.003	1.46	0.004	1.53	0.003	1.68
BI	0.002	0.32	0.001	0.41	0.001	0.31	0.002	0.39	0.002	0.31	0.001	0.32
BM	0.004	5.92 ***	0.005	5.80 ***	0.004	5.92 ***	0.005	5.89 ***	0.006	5.87 ***	0.007	5.85 ***
SIZE	0.024	17.30 ***	0.025	17.32 ***	0.024	17.09 ***	0.025	17.28 ***	0.026	17.10 ***	0.025	17.67 ***
LEV	−0.299	−16.69 ***	−0.297	−16.69 ***	−0.295	−16.59 ***	−0.298	−16.49 ***	−0.300	−16.69 ***	−0.301	−16.88 ***
GDP	0.054	2.35 **	0.053	2.29 **	0.055	2.36 **	0.054	2.32 **	0.053	2.27 **	0.054	2.35 **
Constant	−0.029	−0.91	−0.037	−1.15	−0.037	−1.12	−0.038	−1.15	−0.038	−1.18	−0.041	−1.28
Year (FE)	Yes
industry (FE)	Yes
Adj. R2	0.516		0.518		0.516		0.517		0.516		0.524
F-statistic	110.21 ***		86.20 ***		85.53 ***		85.77 ***		85.60 ***		88.34 ***
No. obs.	800		800		800		800		800		800

*** p < 0.01, ** p < 0.05, * p < 0.10.

shows that the results showed that using this alternative FV measure did not affect the validity of our findings.

7. Endogeneity Tests

Endogeneity is a prevalent problem in panel data estimation, typically resulting from reverse causation and firm-specific omitted variables. Our findings might be impacted, for example, by some firm-relevant characteristics that the OLS model could not account for. Second, there is a chance that firms that do well in terms of their accounting and market measures are more likely to engage in ESG and to set up sustainability and audit committees, which leads to the problem of reverse causation. A two-step Generalized Method of Movement (GMM) suggested by Arellano and Bond (1991) and widely used in recent studies is what we utilize to deal with such issues. The GMM model includes a lag of dependent variables to take into consideration the dynamic character of the model and perhaps mitigate dynamic endogeneity, in contrast to the OLS model, which does not. Unobserved heterogeneity, reverse causality, and dynamic endogeneity are among the endogeneity causes that GMM is better at controlling for (Khan et al., 2023; Wintoki et al., 2012).

Table 9. GMM test.

	Model 1	Model 2	Model 3	Model 4	Model 5	Model 6
	Coef.	Coef.	Coef.	Coef.	Coef.	Coef.
L1.TQ	0.505 ***	0.438 ***	0.487 ***	0.533 ***	0.504 ***	0.427 ***
ESGD	0.013 **	0.044 **	0.013 *	0.027 ***	0.034 **	0.040 **
ACS	------	0.058 *	------	------	------	------
ESGD* ACS	------	0.015 **	------	------	------	------
ACI	------	------	0.128 **	------	------	------
ESGD* ACI	------	------	0.022 **	------	------	------
ACM	------	------	------	0.089 **	------	------
ESGD* ACM	------	------	------	0.035 **	------	------
ACEX	------	------	------	------	0.165 **	------
ESGD* ACEX	------	------	------	------	0.039 **	------
SC	------	------	------	------	------	0.238 **
ESGD* SC	------	------	------	------	------	0.089 **
BS	0.112 **	0.135 *	0.133 *	0.145 *	0.100 *	0.162 **
BI	0.019 **	0.020 *	0.018 **	0.017 **	0.016 **	0.007
BM	0.052	0.049 **	0.051	0.034	0.018	0.057 *
SIZE	0.153 **	0.179 *	0.152 **	0.158 ***	0.110 *	0.220 ***
LEV	−1.864 ***	−1.818 ***	−1.923 ***	−1.503 ***	−1.502 ***	−1.965 ***
GDP	0.245 **	1.049 **	0.276 **	0.962 **	1.480 *	0.248 **
Constant	−1.468 **	−1.670 **	−1.354 *	−1.465 *	−0.897	−1.299
AR(2) p-value	0.548	0.180	0.522	0.115	0.642	0.207
Hansen p-value	0.753	0.644	0.506	0.413	0.511	0.699

*** p < 0.01, ** p < 0.05, and * p < 0.10.

presents the findings from the GMM requirements. The null hypothesis that there is no second-order serial correlation is validated by the fact that the p-value of the Arenallo-bond AR (2) is insignificant in every model. As a result, the connection between error terms and the instruments employed does not affect our GMM parameters. The validity of the tool is further supported by the Hansen test, which yields insignificant results in every model. As a result, every diagnostic test indicates that the GMM models are correctly defined and validates the estimates’ consistency. The results of the investigation confirm our earlier conclusions and demonstrate that endogeneity issues do not affect the estimated associations.

8. Discussion and Policy Recommendations

In the previous section the empirical hypotheses of the current study were supported by the empirical analysis. Specifically, the results revealed (1) that ESG disclosure and firm value are positively correlated; (2) that AC characteristics positively influences the correlation between ESGD and company value; and (3) that sustainability committee positively influences the correlation between ESGD and company value. The first hypothesis is supported by Table 4, while the second, and third hypotheses were supported by Table 5. The fourth and fifth hypotheses were supported by Table 6, and finally the last hypothesis was supported by Table 7.

The positive association between ESGD and FV is consistent with the claims of stakeholders’ theory since ESGD represents a proactive engagement with a range of stakeholders through open and honest disclosure that can promote shared value creation, trust, and long-term relationships. Additionally, this finding provides insights in line with agency theory by emphasizing the ways in which strong ESGD can help to align the interests of various stakeholders, thereby lowering information asymmetry and potential agency conflicts and ultimately fostering better corporate governance and performance. Finally, it is also consistent with previous empirical research that found a positive correlation between ESGD and FV (Almulhim & Metwally, 2025; Alodat & Hao, 2025; Hussain et al., 2024).

The positive moderating role of AC size confirms early claims in the literature on the crucial role played by the AC in monitoring and overseeing successful practices, which in turn improves FV. This entails that ACS can push management to invest in ESGD. This claim is supported by many early studies (Mohammadi et al., 2020; Omair Alotaibi & Hussainey, 2016; Umar et al., 2023). Regarding AC independence’s positive moderating role, this result supports the claims of agency theory, as while monitoring business operations, independent AC members help to mitigate agency issues, lessen information asymmetry, and stop management collusion. They therefore aid in the growing acceptance of sustainability assurance. The findings are also consistent with many studies in the literature that stress improvements in credibility of sustainability reports by existence of AC independence (Al-Shaer & Zaman, 2018; Dwekat et al., 2020).

The positive moderating role of AC meetings is mainly supported by Al-Shaer and Zaman (2018), who emphasize the importance of regular AC meetings in boosting the credibility of ESGD. Furthermore, Dwekat et al. (2020) declares that if ACs met more frequently, they would have greater auditory, accounting, and sustainability experience and knowledge. They would also boost the tasks related to reporting, control, and supervision, which would improve monitoring performance and raise the company’s value. AC financial expertise’s positive moderating role is consistent with the research conducted by Zaman et al. (2021) and Al-Shaer and Zaman (2018). To improve the credibility of ESGD and assurance, which raises the firm’s value, AC financial expert members could alleviate potential stakeholder–agency conflicts, attract human resources, lower agency costs associated with the flow of information, and clarify issues that might push managers and auditors to a higher degree of financial disclosure (Dwekat et al., 2020; Zaman et al., 2021).

Finally, the sustainability committee’s positive moderating role suggests that ESG participation, through environmental, social, and governance activities, significantly contributes to company value in the presence of a sustainability committee since the ESG measure reflects the aggregate effect of firm environmental, social, and governance performance. All things considered, this supports the stakeholders’ theory that when a sustainability committee is in place, businesses strengthen their relationships with stakeholders by attending to their needs and providing clear ESGD, which increases firm value (Almulhim & Metwally, 2025; Alodat & Hao, 2025; Baraibar-Diez & D. Odriozola, 2019).

The above finding supports our ideas based on theories about resources, stakeholders, and how companies are run. It also shows that recent changes by the Saudi government, like the 2030 vision focusing on sustainability, rules, and better management, are helping. This means it’s very important for Saudi officials to use these changes well and make sure all Saudi businesses follow the new rules. Also, the findings back up our ideas about how businesses and stakeholders interact. When companies use sustainable practices and share ESG info openly, they tell stakeholders they care about them (Alodat & Hao, 2025). Stakeholders trust companies that are sustainable because they see them working hard on ESG efforts, rules, and ways of working that are good for the environment and society (Baraibar-Diez & D. Odriozola, 2019). The study also supports the idea that when companies listen to different stakeholders, they do better. This research shows that it’s smart for companies to think about ESG when making big decisions, not just for making money, but also to have a better reputation, attract responsible investors, and manage risks in the environment and society.

This study holds significant implications and policy recommendations for Saudi firms, their management, investors, and regulatory bodies. It provides valuable insights into the financial impacts of ESGD, particularly within the Saudi context. By indicating the potential increase in FV through ESG practices in the region, the study may promote wider adoption of ESG reporting standards, benefiting various stakeholders. Regulators could find support for implementing stronger ESGD requirements rather than relying solely on voluntary disclosures. This could also lead to increased investor awareness focused on ethical returns. Furthermore, the study’s results could provide important insights for Saudi regulators and policymakers. The study demonstrates the importance of factors such as AC size, independence, financial expertise, meeting frequency, and SC in impacting FV. Therefore, regulators and policymakers may consider mandating compliance with specific AC and SC practices for all listed Saudi firms. This recommendation has already been put into practice in other MENA region countries like Egypt since 2022, and it has been shown to improve disclosure and performance of Egyptian firms (Almulhim & Metwally, 2025; Alomair & Metwally, 2025; A. Metwally, 2022; A. Metwally et al., 2021). Moreover, these results can offer advantages for managers, investors, and lawmakers. Considering the positive link between ESGD and FV, managers might discover that investing in ESG initiatives and maintaining open communication channels can improve market and financial performance measures. Managers should consider how the unique characteristics of their industry may impact ESG priorities and adjust their strategies accordingly. For investors, the association between ESGD and FV emphasizes the potential importance of ESG factors in assessing investments. ESG-related insights can be especially valuable for those focused on long-term investment returns.

9. Conclusions, Limitations and Future Research

Using a sample of 100 top non-financial firms listed on the Saudi stock exchange (Tadawul) from 2015 to 2022, yielding 800 firm-year observations, the current research examined how ESGD influences FV in Saudi Arabia. Moreover, the current study explored and analyzed the moderating roles of sustainability committees and AC characteristics (i.e., AC size, AC independence, AC meeting frequency, and AC financial expertise) on the relationship between ESGD and FV. The findings of this research revealed that there is a significant positive impact of ESGD on FV. This outcome confirms the claims of the stakeholders’ theory since they emphasize how proactive engagement with stakeholders through ESGD can support FV. In addition, the results provide insights consistent with agency theory by focusing on how strong ESGD can help to align the interests of various stakeholders, thereby reducing information asymmetry and potential agency conflicts and ultimately fostering better corporate governance and performance. Our outcomes in this regard indicated that all AC attributes (i.e., AC size, AC independence, AC meeting frequency, and AC financial expertise) and the sustainability committee had a positive moderating role in the link between ESGD and FV.

This study provides a distinctive contribution by investigating how the attributes of the AC—including AC size, independence, meeting frequency, and financial expertise—and the SC moderate the association between ESGD and FV in an emerging market, specifically Saudi Arabia. While previous research has typically explored the direct link between AC characteristics, SC, and FV (Abogazia et al., 2022; Aboud & Diab, 2018; Almulhim & Metwally, 2025; Alodat & Hao, 2025; Hussain et al., 2024), this research explored uncharted territory by focusing on Saudi Arabia, a prominent emerging market. This study builds upon existing research by examining how AC characteristics and SC can uniquely impact corporate financial strategies in emerging economies.

This study opens avenues for further research. Broadening the scope to incorporate financial companies on the Saudi Exchange and assessing how their ESG efforts correspond with FV could yield important perspectives. Research focused on specific industries within Saudi Arabia or comparative studies across different countries would deepen our understanding of how ESGs impact market environments. Additionally, exploring factors like related-party dealings, gender diversity of board members, political connections, liquidity management, and the significance of accounting information would provide a richer understanding of how ESG is embedded in wider business operations and its effect on firm outcomes.

While this work emphasizes AC characteristics and SC as pivotal governance components, future investigations might consider a broader array of governance characteristics such as board composition, size, frequency of meetings, and the role of family or foreign ownership. These aspects could provide more about corporate governance and transparency practices among Saudi companies. Also, including these variables could illuminate how governance frameworks improve ESGD, encouraging responsibility and openness across different sectors of the Saudi market.

Although this study adds valuable knowledge, it is important to consider its limitations. First, the analysis is restricted to non-financial firms listed on the Saudi Exchange from 2015 to 2022. Subsequent research could expand to include data from other Gulf Cooperation Council (GCC) nations, where studies on ESGD and FV remain scarce. This is especially pertinent since many countries in the region have recently revised regulations related to ESG and governance standards. Second, by excluding financial institutions, the results may not fully represent the wider Saudi corporate environment, as ESG practices differ notably between industries. Future studies that incorporate financial companies could provide a more comprehensive view of how ESG initiatives influence fair value across the Saudi market, improving the relevance and applicability of the findings.