SUSTAINABLE HUMAN RESOURCE MANAGEMENT, ESG PERFORMANCE, AND FIRM VALUE: EVIDENCE FROM AN EMERGING MARKET

Abstract

This study examines the interconnected dynamics between sustainable human resource management (SHRM), environmental, social and governance (ESG) capabilities and corporate value in an emerging market context. Focusing on Pakistan, the research addresses an important gap in the literature by examining whether SHRM acts as an antecedent to ESG performance and whether ESG mediates the relationship between SHRM and market-based firm value. Based on an integrated theoretical framework that combines stakeholder theory, the resource-based view and signaling theory, the study proposes and tests a sequential mediation model. Using a longitudinal panel dataset of 127 non-financial firms listed on the Pakistan Stock Exchange from 2018 to 2023, the analysis employs fixed-effects regression and bootstrapped mediation techniques. The results show that SHRM has a significant positive direct effect on both firm value (Tobin's Q) and ESG performance. Furthermore, ESG performance positively affects the company's value. Most importantly, the analysis shows that ESG performance fully mediates the SHRM firm value relationship, with approximately 71% of the total effect of SHRM on value transmitted through this pathway. These findings, which are robust to a range of sensitivity controls, show that in Pakistan's institutional environment, strategic investments in sustainable HR practices strengthen firm valuations primarily by building a stronger ESG profile, which signals better management quality and lower risk to the market. The study contributes theoretically by integrating intermediate range theories into a coherent model and presenting relevant evidence from an under researched setting. In practical terms, it provides a convincing business case for company managers and decision makers in Pakistan and similar economies to prioritize SHRM as a strategic lever for enhancing sustainability and financial performance.