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

Birjees Rahat () and Pascal Nguyen ()
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Birjees Rahat: Excelia Group | La Rochelle Business School
Pascal Nguyen: MRM - Montpellier Research in Management - UM1 - Université Montpellier 1 - UPVM - Université Paul-Valéry - Montpellier 3 - UM2 - Université Montpellier 2 - Sciences et Techniques - UPVD - Université de Perpignan Via Domitia - Groupe Sup de Co Montpellier (GSCM) - Montpellier Business School

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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; ESG controversies; Tobin's Q; Enterprise Value (search for similar items in EconPapers)
Date: 2024-05-16
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Citations: View citations in EconPapers (1)

Published in International Review of Financial Analysis, 2024, 95 (103361)

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04729376

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