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Exploring the relationship of ESG score and firm value using cross-lagged panel analyses: case of the Indian energy sector

Abhishek Behl (), P. S. Raghu Kumari (), Harnesh Makhija () and Dipasha Sharma ()
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Abhishek Behl: O. P. Jindal Global University
P. S. Raghu Kumari: K. J. Somaiya Institute of Management
Harnesh Makhija: K. J. Somaiya Institute of Management
Dipasha Sharma: Symbiosis International (Deemed University)

Annals of Operations Research, 2022, vol. 313, issue 1, No 10, 256 pages

Abstract: Abstract Business integration with the internal and external world is gaining momentum in the light of Environment, Social, and Governance factors (ESG score) linkage to corporate financial performance (CFP). However, the impact of the ESG–CFP relationship varies across economies, industries, and institutional frameworks due to varying legal, social structures and expectations from stakeholders. The present study aims to test the bidirectional causality and autoregression effects between ESG disclosures and the firm value of Indian energy sector companies’ data using a four-wave cross-lagged panel structural equation modeling. Results indicate that the relationship is not bidirectional in the overall and individual elementsof ESG to firm value. We find AR effects to be stable, and there is a negative association found in the first two lags and a positive association found in the last lag. Research findings are beneficial for investors, fund managers, policymakers, and energy company managers. We further provide direction to executives on ESG investment and practices and lag period to reap the benefit of such investments through firm value.

Keywords: ESG; Firm value; Bidirectional causality; Energy industry; India (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s10479-021-04189-8

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