Does ESG Performance Enhance Firm Value? Evidence from Korea

Bohyun Yoon, Jeong Hwan Lee and Ryan Byun
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Bohyun Yoon: Division of Economics and Information Statistics, Kangwon National University, Chuncheon 24341, Korea
Jeong Hwan Lee: College of Economics and Finance, Hanyang University, Seoul 04763, Korea
Ryan Byun: Department of Economics, Indiana University Bloomington, Bloomington, IN 47405, USA

Sustainability, 2018, vol. 10, issue 10, 1-18

Abstract: We analyze whether a firm’s corporate social responsibility (CSR) plays a significant role in promoting its market value in an emerging market, namely Korea. We employ environmental, social, and corporate governance (ESG) scores to evaluate CSR performances and examine their effect on firm valuation. We find that CSR practices positively and significantly affect a firm’s market, in line with previous studies on developed countries. However, its impact on share prices can differ according to firm characteristics. For firms in environmentally sensitive industries, the value-creating effect of CSR is lesser than for firms that do not belong to sensitive industries. Specifically, corporate governance practice negatively influences the firm value of environmentally sensitive firms. Further, governance practice significantly promotes market value only for chaebol s, while investors do not significantly value governance practice carried out by other firms. This finding suggests the value-enhancing effects of governance structure reformation in the former. This work mainly contributes to the literature by verifying a positive CSR-valuation relationship in emerging markets, which provides substantial policy and welfare implications in markets where governments play a major role in promoting CSR. A stronger valuation effect of CSR in chaebol s may present economic background for the intervention of the Korean government in the reformation of chaebol.

Keywords: ESG; firm value; corporate social responsibility; sustainable development; Korea; environmentally sensitive industries; family-managed business groups; corporate governance (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (84)

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