Corporate social responsibility and market efficiency: Evidence from ESG and misvaluation measures

Yannik Bofinger, Kim J. Heyden and Björn Rock

Journal of Banking & Finance, 2022, vol. 134, issue C

Abstract: We study the impact of corporate social responsibility (CSR) on firm misvaluation in the US. Our results indicate that a firms Environmental, Social and Governance (ESG) profile significantly affects valuation: an improvement of a firms CSR leads to a higher ratio of actual to true firm value. Analyzing the relation between ESG and misvaluation separately, we find that ESG expands existing overvaluation whereas it reduces undervalued firms’ deviation from the true value. We argue that both valuation effects are attributable to the worldwide trend of sustainable investing. Further analyses reveal a moderating role of market sentiment towards sustainability in the ESG-misvaluation relationship. Our findings suggest that firms CSR is indeed perceived as valuable by shareholders and supports stakeholder theorys view in considering CSR as beneficial.

Keywords: Corporate social responsibility; ESG; Misvaluation; Sustainable investing; Market efficiency; Sentiment (search for similar items in EconPapers)
JEL-codes: G14 G32 M14 Q5 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (38)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:134:y:2022:i:c:s0378426621002739

DOI: 10.1016/j.jbankfin.2021.106322

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