By Mawaheb Abdel-Aziz Ismail

The study examines the value relevance of Environmental, Social, and Governance (ESG) disclosures and tests for crosscountry differences in its impact on perceived firm value between Egypt and Saudi Arabia. It specifically investigates whether ESG data provides incremental explanatory power beyond traditional accounting measures in determining stock prices in these two distinct MENA markets. The study employs a modified Ohlson (1995) valuation model using panel data from 2021 to 2024. The empirical analysis is conducted using Partial Least Squares Structural Equation Modeling (PLS-SEM), a method chosen for its robustness with small sample sizes and formative measures. Multi-group analysis (MGA) is utilized to test the hypothesized differences in path coefficients between the Egyptian and Saudi samples. The results reveal a stark contrast between the two markets. In Saudi Arabia, a positive relationship exists between ESG performance and firm market value, driven predominantly by strong governance (G) disclosures. Conversely, in Egypt, the relationship is negative. This divergence confirms the study’s core hypothesis that the value-relevance of ESG is significantly stronger in Saudi Arabia, attributed to its top-down, mandatory regulatory framework compared to Egypt’s more voluntary, market-led approach. This research provides novel empirical evidence on the contingent nature of ESG value-relevance within the MENA region. It is among the first to offer a direct comparative analysis of Egypt and Saudi Arabia, moving beyond single-country studies to highlight how national regulatory frameworks moderate financial market perceptions of ESG performance. The findings hold significant value for investors, regulators, and standard-setters aiming to enhance the quality and credibility of sustainability reporting in emerging markets.

Source SSRN