Firm's value and ESG: the moderating role of ownership concentration and corporate disclosures

Abstract

PurposeThe study intends to determine the environment, social and governance (ESG)'s impact on the firm's value. In addition, how ownership concentration (OC) and transparency and disclosures (TD) influence the impact of firm's ESG on its valuation (firm value).Design/methodology/approachThe relevant panel data with a sample of 78 Indian firms for five years (2016–2020) are gathered. Both linear and nonlinear connections of firm's ESG with its value are tested. In addition, TD and two components of OC (stakes of promoters and institutional investors) are empirically tested as moderators on the connectivity of the firm's ESG with its value.FindingsThe linear association of firm's ESG with its value is found insignificant. ESG is found to have a positive and nonlinear (U-shaped) impact on the value of the firms. TD does not moderate the connectivity of firm's ESG with its valuation (firm value). The higher stakes of promoters positively affect the association of firm's ESG with the valuation. However, the high stakes of institutional investors retard the ESG's influence on the firm value.Research limitations/implicationsThe study is on Indian firms for five years. A sample of more than one nation and a longer duration (10 years) could have helped better determine the associations among the variables. In turn, these limitations can be the present study's future scope. In addition, the authors find a lack of standardisation of the ESG scales, which is a problem in measuring it. Using standardisation scales of ESG for the analysis can also be future scope on the topic.Practical implicationsThe investors would be wary of the level of ESG to influence the firms' value positively. Managers also need to be careful to have sincere efforts for ESG to reap its rich dividends. Policymakers may take cognisance that despite having board seats (in a few cases), institutional investors negatively (instead of positively as expected) influences the ESG's association with the firm's value. They may bring some guidelines or legislative changes to fix responsibility on the part of the institutional investors.Originality/valueNo study reports the linear and nonlinear association of ESG on the firm's value to observe clearer connectivity between the two. Similarly, no study is observed to have promoters and institutional investors as moderators on the association of firm's ESG with the valuation (firm value). Hence, the present study considerably augments the extant literature on the topic and its contribution.

Mapping the Landscape of the Literature on Environmental, Social, Governance Disclosure and Firm Value: A Bibliometric Analysis and Systematic Review

“…On the contrary, it may benefit the personal interests of managers [76,94]. Additionally, Rastogi et al [95] propose that the outcomes of disclosure, transparency, and ownership are greatly influenced by agency theory. Therefore, the interest in utilizing these theories may stem from the lack of agreement in the literature concerning the connection between engaging in ESG activities and their influence on the firm's value.…”

Nexus between mandatory ESG disclosure regulation and abnormal stock returns: a study of an emerging economy

“…Simultaneously, they suggested that financial performance (measured by RoE) and operating efficiency (measured by asset turnover) mediate this relationship. Rastogi et al (2023) in their recent work on ESG and firm value have concluded the nonlinear positive effect of ESG performance on the market value of the firm. Another research from Abdi et al (2022) has supported the positive effect of ESG disclosure on firm value as well as financial performance.…”

Does ESG Performance Affect the Enterprise Value of China’s Heavily Polluting Listed Companies?

“…Although there have been many studies on the impact of ESG performance on corporate value at home and abroad, the research conclusions are different, and overall they can be divided into three types: First, researchers believe that ESG and corporate value are positively correlated, and ESG will promote the increase of corporate value [1][2][3][4]. With a change of research variables, ESG has a positive nonlinear (U-shaped) impact on enterprise value [5]. ESG can improve enterprise value by enhancing investor confidence [6].…”