Is Sustainability Beneficial in the Long Term? The Significance of Pre-IPO ESG Disclosure

The persistent issue of long-term underperformance among firms has raised increasing concern within the capital market. Purpose: In response to the growing emphasis on sustainable and responsible investment (SRI), which integrates environmental, social, and governance (ESG) dimensions, we investigate whether pre-initial public offering (pre-IPO) ESG disclosure can predict firms’ long-term performance. This research is motivated by the limited empirical evidence on ESG disclosure practices within the Malaysian IPO landscape, where such disclosures remain largely voluntary. Method: Using a sample of 100 IPOs issued between 2012 and 2019, event-time analyses are employed and observed until 2024. The cumulative and buy-hold abnormal returns are employed as the dependant variables, representing long-term performance, three years post-IPO. Results: The findings reveal that voluntary pre-IPO ESG disclosure has a significant impact on firms’ long-term performance. However, the negative relationship suggests potential greenwashing effects consistent with prior literature. Furthermore, when examining the ESG dimensions individually, the study finds that social disclosure practices have a negative influence on firms’ long-term performance. Contributions: This research contributes to IPO literature by offering evidence from a developing market context on how voluntary ESG disclosures prior to listing shape firms’ sustainability. Strengthening ESG disclosure guidelines pre-IPO, aligning firms’ disclosure with actual operational capacity, and expanding future research to Association of Southeast Asian Nations markets are essential to enhance the credibility and valuation relevance of ESG information.

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