Does ESG Performance Enhance Firm Value? Evidence from Korea

Abstract

We analyze whether a firm’s corporate social responsibility (CSR) plays a significant role in promoting its market value in an emerging market, namely Korea. We employ environmental, social, and corporate governance (ESG) scores to evaluate CSR performances and examine their effect on firm valuation. We find that CSR practices positively and significantly affect a firm’s market, in line with previous studies on developed countries. However, its impact on share prices can differ according to firm characteristics. For firms in environmentally sensitive industries, the value-creating effect of CSR is lesser than for firms that do not belong to sensitive industries. Specifically, corporate governance practice negatively influences the firm value of environmentally sensitive firms. Further, governance practice significantly promotes market value only for chaebols, while investors do not significantly value governance practice carried out by other firms. This finding suggests the value-enhancing effects of governance structure reformation in the former. This work mainly contributes to the literature by verifying a positive CSR-valuation relationship in emerging markets, which provides substantial policy and welfare implications in markets where governments play a major role in promoting CSR. A stronger valuation effect of CSR in chaebols may present economic background for the intervention of the Korean government in the reformation of chaebol.

ESG Scores and the Credit Market

“…Similarly, we find no meaningful relationship between governance or social scores and bond returns while environmental scores clearly signal the risks that are not reflected in bond prices when interacting with the firm size. Such similar findings from both advanced and developing countries like the U.S. and Korea provide assurance that the implications from our study can be generalized in a broader setting despite minor variations due to certain geographical issues [15].…”

“…The implications from the examples of BlackRock and the Norway Government Pension Fund Global confirm that the same kind of effect exists in other countries or markets, supporting our finding that the relationship between ESG scores and bond returns holds true in other countries as well. However, the degree of the effect may differ depending on country-specific factors such as the legal regime [15]. Liang and Renneboog assert that the effect of CSR differs depending on the country's legal regime (i.e., whether the country follows the civil or common law) [29].…”

ESG Performance and Shareholder Value Creation in the Banking Industry: International Differences

“…The sample of this empirical research consists of 166 commercial banks which are listed in 31 stock markets from the years 2010 to 2015, and for which exist CSR and financial information extracted from the hugely employed Thomson Reuters Eikon database [32][33][34][35]. These time and cross-section dimensions have been selected in order to obtain a heterogeneous, as well as balanced panel data that allows us to obtain concluding remarks.…”

The impact of environmental, social, and governance performance on stock prices: Evidence from the banking industry

“…The sample of this empirical research consists of 51 commercial banks, which are listed in 20 stock markets during the 2002–2015 period and for which exist CSR and financial information extracted from the hugely employed Thomson Reuters Eikon database (Dell'Atti, Trotta, Iannuzzi, & Demaria, ; Ferrero‐Ferrero, Fernández‐Izquierdo, & Muñoz‐Torres, ; Mervelskemper & Streit, ; Miralles‐Quirós et al, ; Sanches García, Mendes‐Da‐Silva, & Orsato, ; Yoon, Lee, & Byun, , among others).…”