The impact of social, environmental and corporate governance disclosures on firm value

Abstract

PurposeThe purpose of this paper is to examine the impact of environmental, social, and governance (ESG) practices disclosure and firm value in the Egyptian context. This is done through investigating the influence of being listed and ranked in the Egyptian Corporate Responsibility Index on firm value during the period starting from 2007 to 2016.Design/methodology/approachUsing univariate and multivariate analyses, the findings support the economic benefits of ESG disclosures.FindingsThe authors find that firms listed in the ESG index have higher firm value, and that there is a positive association between firms’ higher rankings in the index and firm value, as measured by Tobin’s q.Research limitations/implicationsThe findings provide feedback to regulators and standard-setters in the developing countries, and more specifically the Egyptian regulators, on the benefits associated with the introduction of the sustainability index (Standard & Poor’s (S&P)/EGX ESG index). This, in turn, clarifies how the government’s efforts to promote ESG provide benefits to publicly traded firms.Practical implicationsBy linking ESG to firm value, the ESG index will enable investors to take a leading role in inducing firms to enhance transparency and disclosure, and hence, improving their reporting standards. This, in turn, will ultimately result in improving sustainability and governance practices in Egypt.Social implicationsThe reported positive market reactions to social and governance practices disclosures can motivate firms to improve their social and governance performance.Originality/valueThe study contributes to the literature by addressing the combined economic effects of social and governance disclosures on firm value, and by investigating the economic effects of such disclosures on firm value in an emerging market.