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Abstract

This study examines the moderating role of board effectiveness in the relationship between environmental, social, and governance (ESG) disclosures and the financial performance of firms listed on the Dar es Salaam Stock Exchange (DSE) in Tanzania. Drawing on stakeholder and agency theory perspectives, the study posits that ESG disclosures create value for stakeholders while effective boards enhance oversight and ensure that sustainability initiatives translate into firm performance. Using secondary data from firms’ annual reports for 2016–2024 (198 firm–year observations), the study applies random effects panel regression guided by the Hausman test. Robustness checks were performed using an alternative financial performance measure and additional estimators, including FGLS and 2SLS with instrumental variables. The findings indicate that environmental and social disclosures have a positive and significant effect on financial performance, whereas governance disclosures exhibit a negative and significant association with financial performance in the baseline model. The results further show that board effectiveness positively and significantly moderates the influence of environmental, social, and governance disclosures on financial performance, indicating that stronger boards enhance the financial value of sustainability disclosures. By providing empirical evidence from a frontier African capital market, the study contributes to the ESG and corporate governance literature by demonstrating how board effectiveness conditions the financial implications of ESG disclosures in emerging market firms. The findings further suggest that regulators and firms should strengthen board effectiveness and promote more structured ESG disclosure practices to improve transparency and firm performance.

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