The impact of ESG profile on Firm's valuation in emerging markets

Birjees Rahat and Pascal Nguyen

International Review of Financial Analysis, 2024, vol. 95, issue PA

Abstract: Environmental, Social and Governance (ESG) factors are a critical input in emerging markets for managing risks, attracting capital, being competitive, and complying with evolving regulations. The firms prioritizing ESG are likely to drive innovation and enhance long-term value creation, making them more resilient in these dynamic markets. Therefore, a plausible link should exist between ESG and firm valuation. In this paper, we attempt to validate this link by evaluating the impact of ESG scores and ESG controversies on Tobin's Q and enterprise value to sales (EV/S). Our assessment is based on a comprehensive sample of non-financial firms across sixteen emerging markets for eleven years. Based on fixed effects panel estimations we demonstrate, in general, a positive relationship between firm value and ESG profiles. The fundamental valuation (Tobin's Q) is influenced by the lagged ESG score, while for the multiplier (EV/S), we find the current ESG score to be relevant. For the RepRisk index, we observe that ESG controversies negatively impact firm value for both fundamental and multiplier proxies. Our findings hold considerable implications for the evolving landscape of ESG compliance, particularly for firms and investors in emerging markets, as well as for the broader financial system.

Keywords: ESG scores; RepRisk; Firm valuation; Tobin's Q; Emerging markets (search for similar items in EconPapers)
JEL-codes: G30 G32 M14 Q01 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S105752192400293X
Full text for ScienceDirect subscribers only

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:eee:finana:v:95:y:2024:i:pa:s105752192400293x

DOI: 10.1016/j.irfa.2024.103361

Access Statistics for this article

International Review of Financial Analysis is currently edited by B.M. Lucey

More articles in International Review of Financial Analysis from Elsevier
Bibliographic data for series maintained by Catherine Liu ().