Corporate performance under the digital-sustainability constraining nexus: empirical evidence from Asian firms

This study investigates the determinants of competitiveness and financial performance among Asian firms by examining the role of firm-specific characteristics, macroeconomic indicators, ESG factors and digitalization proxies. Using a sample of 4,028 manufacturing firms and over 36,000 firm-year observations across Asian economies over the period 2014–2024, and employing Fixed Effects, Driscoll–Kraay, and two-step System GMM estimators, we find that higher liquidity and firm size significantly improve competitiveness, whereas inefficiency (high cost-to-income ratio) and excessive dividend payouts reduce it. Surprisingly, R&D intensity and Information and Communication Technology (ICT) goods’ imports – proxies for innovation and AI readiness – positively affect the Boone indicator, suggesting that in the short run, digital transformation and innovation may reduce competitiveness due to upfront costs and capability gaps. ESG variables also play a critical role: energy intensity weakens competitiveness, while government effectiveness enhances it. Moreover, greater competitive pressure, as captured by a more negative Boone indicator, significantly boosts firm profitability, reinforcing the resource optimization view of competition. These findings show that firms navigating digital and ESG transitions must carefully align internal capabilities with external institutional quality. The results provide valuable insights for managers and policymakers on balancing short-term trade-offs with long-term strategic competitiveness in the manufacturing sector under increasing ESG and digital demands.