The impact of social, environmental and corporate governance disclosures on firm value

Abstract

Purpose The purpose of this paper is to examine the impact of environmental, social, and governance (ESG) practices disclosure and firm value in the Egyptian context. This is done through investigating the influence of being listed and ranked in the Egyptian Corporate Responsibility Index on firm value during the period starting from 2007 to 2016. Design/methodology/approach Using univariate and multivariate analyses, the findings support the economic benefits of ESG disclosures. Findings The authors find that firms listed in the ESG index have higher firm value, and that there is a positive association between firms’ higher rankings in the index and firm value, as measured by Tobin’s q. Research limitations/implications The findings provide feedback to regulators and standard-setters in the developing countries, and more specifically the Egyptian regulators, on the benefits associated with the introduction of the sustainability index (Standard & Poor’s (S&P)/EGX ESG index). This, in turn, clarifies how the government’s efforts to promote ESG provide benefits to publicly traded firms. Practical implications By linking ESG to firm value, the ESG index will enable investors to take a leading role in inducing firms to enhance transparency and disclosure, and hence, improving their reporting standards. This, in turn, will ultimately result in improving sustainability and governance practices in Egypt. Social implications The reported positive market reactions to social and governance practices disclosures can motivate firms to improve their social and governance performance. Originality/value The study contributes to the literature by addressing the combined economic effects of social and governance disclosures on firm value, and by investigating the economic effects of such disclosures on firm value in an emerging market.

Do environmental, social and governance performance affect the financial performance of banks? A cross-country study of emerging market banks

“…This study finds a positive association of environmental and social performance with the financial performance of banks in emerging countries. Previous studies also found a positive association of environmental and social performance with financial performance in the company level (Aboud & Diab, 2018;Velte, 2017) and bank level (Buallay, 2019;Esteban-Sanchez et al, 2017). The positive link may occur due to stakeholders' interest in the company or bank ESG disclosure.…”

“…Previous studies found a strong relationship with good corporate governance and CSR practices of the company (Aboud & Diab, 2018;Kaymak & Bektas, 2017). Strong corporate governance may influence the financial performance of banks.…”

“…Corporate governance is defined as the organisation's code of conduct to ensure whether board members and executives actions are compatible with the stakeholder's interests (Esteban-Sanchez et al, 2017). Corporate governance is no longer confined to rules and regulations that are used to monitor the executives and board members actions (Aboud & Diab, 2018). The scope of corporate governance also embraces business ethics, disclosure and accountability (Aboud & Diab, 2018;Lerach, 2002).…”

“…Corporate governance is no longer confined to rules and regulations that are used to monitor the executives and board members actions (Aboud & Diab, 2018). The scope of corporate governance also embraces business ethics, disclosure and accountability (Aboud & Diab, 2018;Lerach, 2002). In recent times, companies set diverse code of conduct on financial and non-financial disclosure and disclose more information to increase the stakeholders' confidence toward the company's operations (Kaymak & Bektas, 2017).…”

Sustainable development and economic performance: Gaps and trends for future research

“…Their study brought no significant conclusions establishing a relationship between the variables. ESG was once again explored by Ferrero‐Ferrero, Fernández‐Izquierdo, and Muñoz‐Torres () who sought to explore the effects of ESG consistency on economic performance; Aboud and Diab () who found a positive relationship between ESG quality and firm value; Atan, Alam, Said, and Zamri () who found no relationships for the selected sample; Zhao et al () who analyzed power generation companies; and Xie, Nozawa, Yagi, Fujii, and Managi () who showed that most ESG activities have a nonnegative relationship with financial performance.…”