Abstract
We investigate the relationship between Environmental, Social and Governance (ESG) practices and firm value by comparing the market value of an extra dollar of cash for non-financial publicly traded Canadian firms with high and low ESG ratings, as measured by the Sustainalytics responsible investment research firm for the period between 2009 and 2012. Our results show that an extra dollar of cash is valued at $1.13 for firms in the top quartile of the ranking, at par for companies at the bottom quartile, and at $1.07 for an average ESG firm. We also show evidence that financial slack has value when future investment opportunities are expected and the cost and availability of capital is uncertain.
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