Business diversification and ESG engagement: Riding tandem to risk reduction and value creation?

Gabriel de la Fuente, Margarita Ortiz and Pilar Velasco

Journal of Business Research, 2025, vol. 200, issue C

Abstract: We examine the overlap between business diversification and environmental, social, and governance (ESG) engagement as two corporate risk management strategies, and theorise the underlying mechanisms of their interaction effect on firm value. Drawing on agency and stakeholder theories, we test our hypotheses using a sample of U.S. firms (2009–2019). Our findings indicate that ESG engagement mitigates the diversification discount. Further, ESG engagement reduces systematic risk, while diversification reduces idiosyncratic risk. However, we find no evidence supporting for the mediating role of total risk in the relationship between these strategies’ interaction and firm value. This suggests the need to explore alternative channels that may produce complementarities between these strategies.

Keywords: Corporate diversification; ESG; Corporate social responsibility; Corporate risk management; Firm value (search for similar items in EconPapers)
JEL-codes: G30 G32 L25 M14 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbrese:v:200:y:2025:i:c:s0148296325004990

DOI: 10.1016/j.jbusres.2025.115676

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