SDG adoption and firm risk: The impact of ESG performance, investor confidence, and agency cost

Rajat Sharma, Sonia Chawla, Vishal Dagar, Muneza Kagzi and Amar Rao

International Review of Economics & Finance, 2025, vol. 101, issue C

Abstract: This study investigates the nexus between firm-level Sustainable Development Goals (SDG) adoption and firm risk using a unique dataset of National Stock Exchange (NSE) 500 companies from 2019 to 2024. It constructs a novel SDG adoption index to assess this relationship and reveals a noteworthy reduction in firm risk associated with SDG adoption. The results remain robust after a battery of robustness checks, including endogeneity concerns using 2SLS IV and system GMM and sample selection bias through Heckman's two-stage methods. Furthermore, the mechanism test indicates that SDG adoption reduces firm risk by enhancing investor confidence, improving ESG performance, and reducing agency costs. In addition, heterogeneity analyses demonstrate that the impact is more accentuated for enterprises with higher information asymmetry, higher board gender diversity, and non-state ownership. The results carry significant implications for investors, corporations, and policymakers seeking to mitigate risk and foster sustainable practices, particularly within the context of the COVID-19 pandemic and emerging markets.

Keywords: Sustainable development goals; ESG performance; Firm risk; Investor confidence; Information asymmetry; Board gender diversity (search for similar items in EconPapers)
JEL-codes: D82 G32 G38 M14 Q01 Q56 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:101:y:2025:i:c:s1059056025003685

DOI: 10.1016/j.iref.2025.104205

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