ESG performance and firm risk in the U.S. financial firms

Jooh Lee and Kyungyeon (Rachel) Koh

Review of Financial Economics, 2024, vol. 42, issue 3, 328-344

Abstract: This study examines the association between the environmental, social, and governance (ESG) performance and firm risk in U.S. financial firms. We find a significant negative association between the composite ESG performance and total, idiosyncratic, and systematic risks after controlling for firm and year fixed effects and other risk predictors. We also examine the effect of each pillar of ESG on this relationship and find that “S” and “G” exhibit a significant negative relationship with both systematic and idiosyncratic risks of firms, while “E” is only associated with systematic risk. Lastly, we demonstrate that ESG performance is negatively associated with the extent to which leverage contributes to firm risk, supporting our premise that ESG alleviates financial risk. Overall, we provide empirical evidence of potential risk management benefits of ESG in the financial industry.

Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1002/rfe.1208

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:revfec:v:42:y:2024:i:3:p:328-344

Access Statistics for this article

More articles in Review of Financial Economics from John Wiley & Sons
Bibliographic data for series maintained by Wiley Content Delivery ().