The Impact of the Business Life Cycle on the Relationship between Excessive ESG and Firm Value

Abstract

This study aims to investigate the impact of the business life cycle on the relationship between excessive ESG and firm value through regression analysis. The study targeted Korean firms from 2016 to 2021, and the findings revealed a negative correlation between excessive ESG investment and firm value. After including the business life cycle in the analysis, no relationships were found during the introduction and decline stages between these two factors. However, excessive ESG positively impacts firm value during both the growth and mature stages of the business life cycle. In the growth stage, firms need a strategy that distinguishes them from other competitors. Thus, ESG investments serve as a method for differentiation in a competitive market, resulting in a positive association between the two factors. Additionally, firms in the mature stage possess substantial cash flow, enabling them to engage in a wider array of socially responsible initiatives. Therefore, in both stages, excessive ESG aligns with strategic objectives and is critical for enhancing firm value. This study suggests that companies can strategically leverage ESG investments to maximize firm value according to the different stages of the business life cycle.