Abstract
This study examines the impact of firms’ environmental, social and governance (ESG) initiatives on financial performance. It also compares the valuation effects of corporate social performance initiatives in developed and emerging market firms. The study was based on ESG ranking scores in the Thomson Reuters database, and the sample comprised 1317 emerging market firms and 3569 developed market firms. In comparison with developed market firms, emerging market firms had higher ESG combined scores, ESG Controversy scores, category scores of resources use, workforce, human rights and corporate social responsibility strategy scores. This study finds that stakeholder initiatives positively impact valuation effects, based on all sample results. Firm-generated controversies may decrease valuation effects in the stock market. Results indicated that ESG initiatives have a significant positive to the firm performance. The presence of independent board members and ownership by investors is a positive determinant for value creation. The adoption of best practice corporate governance principles is an important determinant of the valuation of firms. Firms’ propensity to use defence mechanisms decreases valuation effects. Developed market firms received positive valuation effects due to ESG initiatives.
Highlights
Previous research increasingly focused on corporate social relationship, corporate social responsibility and the interface between a firm and society
Advocates of the stakeholder theory argued that firms must engage in socially responsible behaviour aimed at energy conservation and pollution abatement, which would lead to value creation in the form of improved productivity, corporate reputation and market share
The mean price-to-earnings ratio (P/E) ratio was higher for the emerging market firms, whereas the median P/E ratio was higher for the developed market firms
Summary
Previous research increasingly focused on corporate social relationship, corporate social responsibility and the interface between a firm and society. A modern trend indicates that firms are involved in the integration of environmental, social and governance (ESG) objectives in various functional areas. Firms often advertise their corporate social responsibility (CSR) activities and publish formal reports of CSR accomplishments [2]. The underlying premise of this research is to explore corporate CSP as a determinant of CFP It examines the impact of firms’ ESG initiatives on financial performance. It compares the valuation effects of CSP initiatives in developed and emerging market firms.
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