This study examines how environmental, social, and governance (ESG) performance is associated with firm value by distinguishing two mechanisms: capability-based signal validation through innovation and perception-based signal amplification through potential greenwashing.
Drawing on signaling theory and the resource-based view, we analyze 5,702 firm-year observations from 11 Asian economies over 2013–2023 using difference generalized method of moments. Innovation intensity is examined as a mediator, with the indirect effect assessed using 5,000 firm-level bootstrap replications, while potential greenwashing, measured as ESG disclosure–performance misalignment, is examined as a moderator. Robustness analyses use disaggregated ESG pillars, return on assets, and panel vector autoregression.
ESG performance is positively associated with firm value and innovation intensity, while innovation intensity is positively associated with firm value. Bootstrap analysis confirms a significant indirect effect through innovation intensity, supporting partial mediation. Potential greenwashing is negatively associated with firm value but positively moderates the ESG–firm value relationship. This contrasting pattern is consistent with two mechanisms: innovation substantiates ESG signals through underlying organizational capabilities, whereas disclosure–performance misalignment can amplify their market visibility without equivalent capability-based support.
Managers should embed ESG commitments in substantive innovation activities rather than rely on disclosure alone. Investors and policymakers should assess whether ESG claims are supported by observable capabilities and strengthen external verification.
Integrating signaling theory with the resource-based view, this study distinguishes capability-based signal validation from perception-based signal amplification, explaining why ESG signals can be associated with firm value through substantively different pathways.
