Financial Performance and Sustainability Transparency: Logistic and Bayesian Analysis of ESG Reporting

Abstract

Amid tightening regulatory frameworks, exemplified by the EU Corporate Sustainability Reporting Directive (CSRD), understanding the determinants of Environmental, Social, and Governance (ESG) disclosure has become a critical concern for both scholars and practitioners. This paper explores the interplay between ESG reporting practices and financial performance in a sample of 300 Italian-owned firms operating in Romania over the period 2012–2022. A novel dataset was developed by integrating information from the Bureau van Dijk Orbis database with publicly available corporate reports, providing an original empirical basis for this study. Financial performance was distilled using Principal Component Analysis (PCA), while ESG disclosure was specified as a binary dependent variable. The analysis employed logistic and probit regression models, supplemented with Bayesian estimation techniques to ensure robustness. Results reveal a U-shaped relationship between firm performance and the likelihood of ESG reporting: both underperforming and highly profitable companies are more inclined to disclose sustainability information, either as a legitimacy mechanism or as a reputational signaling strategy. Additionally, group-level ESG commitments, firm size, and sectoral risk exposure emerges as significant predictors of disclosure behavior. This research contributes to the literature by offering rare insights into an understudied Eastern European context, with implications for multinational corporate governance and sustainability policy design. Future investigations should extend this framework to dynamic modeling and incorporate qualitative evidence to better understand the motivations behind ESG transparency. JEL: M14, G30, Q56, C38